Question 1

If the title to a leased asset does not transfer to the lessee at the end of the lease term, but the lessee guarantees the residual, what is the period and residual value used by the lessor to depreciate the leased asset?

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4

Question 2

Amanda Company leased an office building for six years for an annual rent of $170,000.The lessor agreed to forgive the first year of the lease (i.e.payments would not begin until the second year).The entry in the second year would include a debit to:

Accepted Answer

A) deferred liability-$28,333 
B) deferred liability-$141,667 
C) rent expense-some other amount 
D) rent expense-$170,000

Question 3

ABC INC.entered into a direct financing lease with QRS to rent a machine that cost $157,895.The lease term was for six years.The annual rentals are payable at the end of each year, and ABC INC.expects to earn a 14 percent rate of return.The required amount of the annual rentals is (rounded to the nearest dollar):

Accepted Answer

A) $30,000 
B) $40,604 
C) $46,288 
D) $36,600

Question 4

The estimated residual value of a depreciable leased asset at the end of the lease term is:

Accepted Answer

A) an important factor in how the lessor and lessee must account for the lease. 
B) added to the bargain purchase option at the expiration of the lease. 
C) used by the lessor to compute the annual amount of depreciation expense. 
D) always guaranteed by either the lessor or the lessee.

Question 5

Contingent rent is a bargaining tool used by the lessee in order to negotiate a more favourable lease agreement.

Accepted Answer

A) True 
 B)False

Question 6

CDE leases land and secures the landowner's permission to erect a warehouse on the leased site.The lease has 25 years to run from the time CDE completes the warehouse at a cost of $300,000.The warehouse is expected to last 50 years.In connection with the warehouse, CDE's annual depreciation should be:

Accepted Answer

A) $7,500 
B) $6,000 
C) $12,000 
D) The entire $300,000 should be expensed the first year.

Question 7

The term usually used to describe the situation where a lessee has an option to purchase the leased property at a price that is sufficiently lower than its fair market value so that the exercise of the option appears reasonably assured is:

Accepted Answer

A) bargain renewal option. 
B) assured purchase option. 
C) bargain purchase option. 
D) bargain buy-out option.

Question 8

A lessor and lessee enter into a lease agreement with the following characteristics: Inception: 1/1/x0 annual lease payments of $10,000 are due each Jan.1 beginning 1/1/x0 End of lease term: 12/31/x5
Book value of equipment under lease, at inception: $35,000 Market value of equipment under lease, at inception: $50,000 Remaining useful life of equipment at inception: 9 yrs Expected residual value at end of lease term: $4,000
Interest rate used by lessor and lessee: 10%
Assuming the lessor will capitalize this lease, what is the amount of the net lease receivable for the lessor, before the first payment is made?

Accepted Answer

A) $50,166 
B) $47,908 
C) $64,000 
D) $60,000

Question 9

For the lessor, under a sales-type lease, the excess of the normal sales price (i.e., current market)of the leased asset over its cost (or carrying amount)should be recognized as revenue by the lessor:

Accepted Answer

A) in equal amounts during the lease term. 
B) in decreasing amounts during the lease term. 
C) in full at the inception date of the lease. 
D) in increasing amounts during the lease term.

Question 10

For an operating lease, the amount initially capitalized by the lessee is the present value of the lease rents to be paid over the lease term.

Accepted Answer

A) True 
 B)False

Question 11

List the guidelines required under ASPE that are used to determine whether a lease is a finance lease from the lessors point of view?

Accepted Answer

The answer of List the guidelines required under ASPE that...

Question 12

A bargain purchase option in a finance lease affects the:

Accepted Answer

A) lessee's capitalized cost of the leased asset. 
B) incremental target rate of return. 
C) guaranteed residual value. 
D) dealer's profit in a sales-type lease.

Question 13

Ryan Corp.leased an asset from Amanda Corp.under a finance lease.The original entry for finance lease included a debit to leased asset for $75,000.Amortization on the asset amounted to $7,500.At the end of the year, the lease liability on the books was $64,567.What is the temporary difference?

Accepted Answer

The answer of Ryan Corp.leased an asset from Amanda Corp.under...

Question 14

Operating leases are usually of shorter duration than finance leases and under this type of lease, the risks and rewards of asset ownership remain with the lessor.

Accepted Answer

A) True 
 B)False

Question 15

A lessee capitalized a lease with a 1/1/x1 inception and which required annual lease payments of $5,000 to be paid each December 31 beginning 12/31/x1.The lessee is to pay an additional $200 each December 31 for maintenance and insurance for the year ending on that date.The last lease payment is due 12/31/x6, on which date the title to the asset transfers to the lessee.The asset is expected to be used by the lessee until 12/31/x9 at which time the asset will have no residual value.What is the total expense related to the lease recognized by the lessee in 20x4? Both lessor and lessee use 10%.

Accepted Answer

A) $4,797 
B) $6,008 
C) $4,598 
D) $2,378 
E) $7,620

Question 16

The amount of finance revenue to be recognized by JKL Inc.during Year 2 would be:

Accepted Answer

A) $2,104,672 
B) $1,965,419 
C) $1,637,124 
D) $,2,537,864

Question 17

A lessee's insurance expense throughout the term of a finance lease is usually an estimate as opposed to an actual expense amount.

Accepted Answer

A) True 
 B)False

Question 18

XYZ agreed to lease an industrial machine that cost $108,000 to RST for six years.The lease was a direct financing lease and a 12 percent interest rate was used to calculate the annual lease payments, which were payable at the end of each year.The amount of each annual rental was:

Accepted Answer

A) $44,402 
B) $20,160 
C) $18,000 
D) $26,268

Question 19

The appropriate valuation of an operating lease on the balance sheet of a lessee is:

Accepted Answer

A) the absolute sum of the lease payments. 
B) zero unless the lessee made a prepayment of rent. 
C) the present value of the sum of the lease payments discounted at an appropriate rate. 
D) the market value of the asset at the date of the inception of the lease.

Question 20

Executory costs include:

Accepted Answer

A) insurance premiums. 
B) leasehold improvements. 
C) finance expense incurred. 
D) annual lease rentals paid.

Exam 18: Leases

If the title to a leased asset does not transfer to the lessee at the end of the lease term, but the lessee guarantees the residual, what is the period and residual value used by the lessor to depreciate the leased asset?

Amanda Company leased an office building for six years for an annual rent of $170,000.The lessor agreed to forgive the first year of the lease (i.e.payments would not begin until the second year) .The entry in the second year would include a debit to:

The estimated residual value of a depreciable leased asset at the end of the lease term is:

Contingent rent is a bargaining tool used by the lessee in order to negotiate a more favourable lease agreement.

The term usually used to describe the situation where a lessee has an option to purchase the leased property at a price that is sufficiently lower than its fair market value so that the exercise of the option appears reasonably assured is:

For the lessor, under a sales-type lease, the excess of the normal sales price (i.e., current market) of the leased asset over its cost (or carrying amount) should be recognized as revenue by the lessor:

For an operating lease, the amount initially capitalized by the lessee is the present value of the lease rents to be paid over the lease term.

List the guidelines required under ASPE that are used to determine whether a lease is a finance lease from the lessors point of view?

A bargain purchase option in a finance lease affects the:

Ryan Corp.leased an asset from Amanda Corp.under a finance lease.The original entry for finance lease included a debit to leased asset for $75,000.Amortization on the asset amounted to $7,500.At the end of the year, the lease liability on the books was $64,567.What is the temporary difference?

Operating leases are usually of shorter duration than finance leases and under this type of lease, the risks and rewards of asset ownership remain with the lessor.

The amount of finance revenue to be recognized by JKL Inc.during Year 2 would be:

A lessee's insurance expense throughout the term of a finance lease is usually an estimate as opposed to an actual expense amount.

XYZ agreed to lease an industrial machine that cost $108,000 to RST for six years.The lease was a direct financing lease and a 12 percent interest rate was used to calculate the annual lease payments, which were payable at the end of each year.The amount of each annual rental was:

The appropriate valuation of an operating lease on the balance sheet of a lessee is:

Executory costs include: