Question 1

What is meant by the term "minimum lease payments"?

Accepted Answer

The answer of What is meant by the term "minimum...

Question 2

When a capital lease is first recorded at the inception of the lease,the lessee typically debits:

Accepted Answer

A) Leased asset. 
B) Rent expense. 
C) Lease expense. 
D) Lease receivable.

Question 3

Differentiate between guaranteed and unguaranteed residual value of leased property.Does the difference affect the lessor's accounting for the lease?

Accepted Answer

The answer of Differentiate between guaranteed and unguaranteed residual value...

Question 4

On January 1,2016,Packard Corporation leased equipment to Hewlitt Company.The lease term is eight years.The first payment of $450,000 was made on January 1,2016.Remaining payments are made on December 31 each year,beginning with December 31,2016.The equipment cost Packard Corporation $2,400,000.The present value of the minimum lease payments is $2,640,000.The lease is appropriately classified as a sales-type lease.Assuming the interest rate for this lease is 10%,what will be the balance reported as a liability by Hewlitt in the December 31,2017,balance sheet?

Accepted Answer

A) $1,950,000. 
B) $1,509,000. 
C) $1,959,000. 
D) $1,704,900.

Question 5

Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs.Initial direct costs are recorded as assets and amortized over the term of the lease in:

Accepted Answer

A) An operating lease. 
B) A capital lease. 
C) A direct financing lease. 
D) A sales-type lease.

Question 6

GAAP requires that some lease agreements be accounted for as purchases.The theoretical justification for this treatment is that a lease of this type:

Accepted Answer

A) Complies with the concept of form over substance 
B) Reflects the relationship of cause and effect 
C) Satisfies the concept of historical cost 
D) Conveys most of the benefits of property ownership.

Question 7

The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

Accepted Answer

A) True 
 B)False

Question 8

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to leases of land and buildings?

Accepted Answer

The answer of How do U.S.GAAP and International Financial Reporting...

Question 9

Discuss the economic advantages of leasing.

Accepted Answer

The answer of Discuss the economic advantages of leasing....

Question 10

In its 2016 annual report to shareholders,Douglas-Roberts International Corporation disclosed the following:
In 2016,the company entered into three sale-leaseback arrangements with various financial institutions.Under the first arrangement,truck cab assembly machinery with a net book value of $58 million was sold for $60 million and leased back under an eight-year operating lease agreement.Under the second arrangement,tooling and related engine manufacturing equipment with a net book value of $261 million was sold for $260 million and leased back under an 11.5-year operating lease agreement.The third arrangement consisted of additional engine manufacturing equipment with a net book value of $62 million that was sold for $65 million and leased back under a 10-year operating lease agreement.The gain on these transactions was deferred and is being amortized over the terms of the lease agreements.
Discuss the most likely reasons for these three transactions,and explain the basis for the last sentence of the disclosure.

Accepted Answer

The answer of In its 2016 annual report to shareholders,Douglas-Roberts...

Question 11

Damon is the lessee in connection with a Type A lease.Under the new ASU,Damon would not record:

Accepted Answer

A) Depreciation expense. 
B) Amortization expense. 
C) Interest expense. 
D) A right-of-use asset.

Question 12

The appropriate asset value reported in the balance sheet by the lessee for an operating lease is:

Accepted Answer

A) Present value of the minimum lease payments. 
B) Sum of the minimum lease payments. 
C) Fair value of the asset at the inception of the lease. 
D) Zero,unless a prepayment or accrual is involved.

Question 13

Since the lease payments under a lease agreement are normally paid at the beginning of each period,the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

Accepted Answer

A) Ordinary annuity table. 
B) Present value of $1 table. 
C) Present value of an annuity due table. 
D) Future value of an annuity due table.

Question 14

Which of the following statements regarding guaranteed residual values is true for the lessee?

Accepted Answer

A) The asset and liability at the inception of the lease should be increased by the amount of the residual value. 
B) The asset and liability at the inception of the lease should be decreased by the amount of the residual value. 
C) The asset and liability at the inception of the lease should be increased by the present value of the residual value. 
D) The asset and liability at the inception of the lease should be decreased by the present value of the residual value.

Question 15

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

Accepted Answer

A) 75% of the expected economic life of the leased property. 
B) 90% of the expected economic life of the leased property. 
C) 80% of the expected economic life of the leased property. 
D) 50% of the expected economic life of the leased property.

Question 16

Compare and contrast the way leases are classified between operating and finance (capital)leases under U.S.GAAP and IFRS.

Accepted Answer

The answer of Compare and contrast the way leases are...

Question 17

On January 1,2016,Holbrook Company leased a building under a three-year operating lease.The annual rental payments are $68,000 on January 1,2016,the inception of the lease,and $50,000 January 1 of 2017 and 2018.Holbrook made structural modifications to the building costing $90,000 before occupying the building.The useful life of the building and the modifications is 30 years with no expected residual value.
Required:
Prepare the appropriate journal entries for Holbrook Company for 2016.Holbrook's fiscal year is the calendar year,and the company uses straight-line depreciation.

Accepted Answer

The answer of On January 1,2016,Holbrook Company leased a building...

Question 18

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

Accepted Answer

A) Total expenses for the lessee will be different from the lessor's total revenues. 
B) Total expenses for the lessee will equal the lessor's total revenues. 
C) GAAP has been violated by at least one party. 
D) The lessee will report more net income for the year.

Question 19

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Accepted Answer

The answer of Listed below are five terms followed by...

Question 20

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Accepted Answer

The answer of Listed below are five terms followed by...

Exam 15: Leases

What is meant by the term "minimum lease payments"?

When a capital lease is first recorded at the inception of the lease,the lessee typically debits:

Differentiate between guaranteed and unguaranteed residual value of leased property.Does the difference affect the lessor's accounting for the lease?

Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs.Initial direct costs are recorded as assets and amortized over the term of the lease in:

GAAP requires that some lease agreements be accounted for as purchases.The theoretical justification for this treatment is that a lease of this type:

The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to leases of land and buildings?

Discuss the economic advantages of leasing.

Damon is the lessee in connection with a Type A lease.Under the new ASU,Damon would not record:

The appropriate asset value reported in the balance sheet by the lessee for an operating lease is:

Since the lease payments under a lease agreement are normally paid at the beginning of each period,the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

Which of the following statements regarding guaranteed residual values is true for the lessee?

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

Compare and contrast the way leases are classified between operating and finance (capital)leases under U.S.GAAP and IFRS.

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

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.