Acc 305 Week 7 Quiz 4 Essay

1060 Words May 2nd, 2016 5 Pages
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ACC 305 Week 7 Quiz 4 – STR NEW TRUE-FALSE—Conceptual 1. Leasing equipment reduces the risk of obsolescence to the lessee, and passes the risk of residual value to the lessor.
2. The FASB agrees with the capitalization approach and requires companies to capitalize all long-term leases.
3. A lease that contains a purchase option must be capitalized by the lessee.
4. Executory costs should be excluded by the lessee in computing the present value of the minimum lease payments.
5. A capitalized leased asset is always depreciated over the
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16. The lessor will recover a greater net investment if the residual value is guaranteed instead of unguaranteed.
17. The primary difference between a direct-financing lease and a sales-type lease is the manufacturer’s or dealer’s gross profit.
18. The gross profit amount in a sales-type lease is greater when a guaranteed residual value exists.
19. Companies must periodically review the estimated unguaranteed residual value in a sales-type lease.
20. The FASB requires lessees and lessors to disclose certain information about leases in their financial statements or in the notes. MULTIPLE CHOICE—Conceptual 21. Major reasons why a company may become involved in leasing to other companies is (are)
a. interest revenue.
b. high residual values.
c. tax incentives.
d. all of these. 22. Which of the following is an advantage of leasing?
a. Off-balance-sheet financing
b. Less costly financing
c. 100% financing at fixed rates
d. All of these 23. Which of the following best describes current practice in accounting for leases?
a. Leases are not capitalized.
b. Leases similar to installment purchases are capitalized.
c. All long-term leases are capitalized.
d. All leases are capitalized.
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