Exam 15: Leases

If the lessee and the lessor use different interest rates to account for a capital lease,then

Kaye Corporation agreed to lease a computer,at cost,to Lumbar Company for $36,000 payable each year-end for seven years without a bargain purchase option,or,as an equivalent alternative,for $33,000 per year with a bargain purchase option,after the seventh rental.If the lease is a direct financing lease,and Kaye expects to earn a 12 percent return,the amount of cash Lumbar Company would need to pay for the bargain purchase option is

Patrol,Inc. ,leased a machine from Ravel Company.The lease term was for a five-year period beginning January 1,2014.Equal annual lease payments of $3,000 are due on December 31 of each year.The implicit rate of the lease is 10% and is known to Patrol.Patrol has properly applied the lease capitalization criteria and as a result,accounts for the lease as a capital lease.The first payment under the lease was made on December 31,2014 as scheduled. How much should Patrol classify as the current portion of the lease liability at December 31,2014?

Keefer Inc.uses leases as a means of selling its equipment.On January 1,2014,the company leased a machine to Jeremy Manufacturing Inc.The cost of the machine to Keefer was $78,450.The fair market value (which was the sales price)was $101,184 at the time of the lease.Annual lease payments are $13,500 and are payable in advance for 12 years.At the end of the lease term,title to the machine will pass to Jeremy Manufacturing.

From the standpoint of the lessee,the minimum lease payment includes all of the following except

Tammy Corporation leased used equipment to Waller,Inc.The equipment originally had a 10-year life and the lease to Waller is for the last two of the ten-year life of the asset.The lease calls for four semiannual lease payments of $2,000 to be made at the end of each year in the life of the lease.The lease agreement contains no transfer of title or bargain purchase option provisions. What is the amount of the leased asset that should be recorded on Waller's books at the beginning of the lease?

Ollie Company entered into a lease agreement with Costello,Inc. ,to lease an asset that cost Ollie $120,000.The lease agreement requires five annual year-end rentals of $40,000 each.Ollie's implicit rate on the lease is 15 percent. Ollie's dealer profit on this lease would be

McCabe Institute leased a new machine having an expected useful life of 12 years.The noncancelable lease term is 10 years,and McCabe may exercise a purchase option at the end of the noncancelable term.The machine should be capitalized by McCabe and depreciated over

Which of the following is true regarding the deferral of sale profits on a sale-leaseback under IAS 17,"Accounting for Leases?

In a lease that is recorded as an operating lease by the lessee,the equal monthly rental payments should be

Lease X does not contain a bargain purchase option,but the lease term is equal to 90 percent of the estimated economic life of the leased property.Lease Y does not transfer ownership of the property to the lessee by the end of the lease term,but the lease term is equal to 75 percent of the estimated economic life of the leased property.How should the lessee classify these leases? Lease X Lease Y

Brooke Distributing leased a machine for a period of eight years,contracting to pay $200,000 at the beginning of the lease term on December 31,2014,and $200,000 annually on December 31 for each of the next seven years.The present value of the eight rent payments over the lease term,appropriately discounted at 10 percent,is $1,174,000.On its December 31,2015,balance sheet,Brooke should report a liability under capital lease of

One of the four general criteria for a capital lease specifies that the lease term be equal to or greater than

Scher Co.leased a machine on December 31,2014.Annual payments under the lease are $110,000 (which includes $10,000 annual executory costs)and are due on December 31 each year,for a ten-year period.The first payment was made on December 31,2014,and the second payment was made on December 31,2015.According to the agreement,the lease payments are discounted at 10 percent over the lease term.Assume the present value of minimum lease payments at the inception of the lease and before the first annual payment was $615,000 and Scher appropriately classified the lease as a capital lease.What is the lease liability Scher should report in its December 31,2015,balance sheet?

Monsieur Retail Stores is negotiating three leases for store locations.Monsieur's incremental borrowing rate is 12 percent.Each store will have an economic useful life of 30 years.Lease payments will be made at the end of each year.Based on the data below,properly classify each of the leases as an operating lease or a capital lease.The purchase price for each property is listed as an alternative to leasing. Determine whether each of the leases should be classified by Monsieur as an operating lease or a capital lease.Show computations and reasons to support your answers.

One of the four general criteria for a capital lease is that the present value at the beginning of the lease term of the minimum lease payments equals or exceeds

Which of the following statements characterizes an operating lease?

Sanborn,Inc. ,leased equipment from Chase Supply on December 31,2014.The lease term is for the 10-year period expiring December 30,2021.The useful life of the leased asset is 10 years.Equal annual payments under the lease are $100,000 due on December 31 of each year.The first payment was made on December 31,2014.Sanborn's incremental borrowing rate was 12% at December 31,2014.Chase's implicit rate for the lease is 10% and is known by Sanborn.Sanborn appropriately accounts for the lease as a capital lease. What is the balance in Sanborn's "Liability Under Lease Agreements" account at December 31,2015?

On January 1,2014,A1A Company leased a warehouse to Elisha under an operating lease for ten years at $80,000 per year,payable the first day of each lease year.A1A paid $36,000 to a real estate broker as a finder's fee.The warehouse is depreciated at $20,000 per year.During 2014,A1A incurred insurance and property tax expense totaling $15,000.A1A's net rental income for 2014 should be

On January 2,2014,Commack Corporation entered into a 10-year noncancelable lease requiring year-end payments of $60,000.The incremental borrowing rate for Commack is 10%.The lessor's implicit rate (which is known by Commack)is 12%.The lease contains no transfer of title or bargain purchase option provisions.The leased property has an estimated economic life of 12 years.At what amount should the lease be capitalized by Commack?