Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
60 Cards in this Set
- Front
- Back
|
A lease is legally a/an ___________ contract.
A. mutually performed B. executed C. executory D. unilateral |
C
executory |
|
|
When accounting for an operating lease, which one of the following accounts are charged with the expense on the lessee's income statement?
A. Depreciation Expense B. Amortization Expense C. Rent Expense D. Lease Operating Expense |
C
rent expense |
|
|
The lessor of a building with an operating lease records on its balance sheet an asset equal to
A. zero. B. the present value of future lease receipts. C. the depreciated historical cost of the asset D. the fair market value of the leased asset. |
C
the depreciated historical cost of the asset |
|
|
To remain in accordance with GAAP, operating leases require footnote disclosure of the
A. amount of annual rental payments . B. discounted present value of future lease payments . C. undiscounted present value of future lease payments. D. future cash outflows arising from operating leases. |
D
future cash outflows arising from operting leases |
|
|
Compared to a firm with a capital lease, operating leases help the lessee firm earn
A. higher return on assets. B. lower return on assets. C. higher debt-to-equity ratio. D. lower NOPAT. |
A
higher return on assets |
|
|
If a corporation signs a ten-year lease for a building and the present value of the lease payments is $250,000, the lease is a capital lease if the
A. fair value of the building is $1,000,000. B. remaining useful life of the building is 20 years. C. lessor can purchase the building for $5,000 at the end of the lease when the fair market value is estimated to be $25,000. D. building reverts back to the lessor at the end of the lease. |
C
lessor can purchase the building for 5000 at the end of the lease when the fiar market value is estimated to be 25000 |
|
|
SFAS No. 13 establishes specific criteria for the treatment of leases. If any of the criteria are met, the lessee
A. must treat the lease as an operating lease. B. must treat the lease as a capital lease. C. may choose the treatment if two or less criteria are met. D. may elect to treat the lease as an operating lease if only one criterion is met. |
B
must treat the lease as a capital lease |
|
|
SFAS No. 13 establishes specific criteria for the treatment of leases. Which of the following does not accurately describe the criteria applicable to a lessee?
A. The lease agreement contains a bargain purchase option. B. The lease term is equal to or exceeds 75% of the leased asset's useful life . C. The lease agreement transfers title of the leased asset to the lessee at the end of the lease term. D. The present value of the minimum lease payments is equal to or greater than 75% of the leased asset's fair value. |
D.
The present value of the minimum lease payments is equal to or greater than 75% of the leased asset's fair value. |
|
|
When a lessee has a capital lease for its primary premises it would initially record a leased asset on the balance sheet equal to
A. zero. B. the present value of future lease payments. C. the sum of future lease payments. D. the lesser of the fair market value of the asset or the present value of the future lease payments. |
D
the lesser of the fair marekt value of the asset or the present value of the fture lease payments Assets are never recorded at an amount higher than the fair market value. |
|
|
A lessee mistakenly treated an operating lease as a capital lease. How does this mistake impact the following at the inception of the lease?
A. Choice a B. Choice b C. Choice c D. Choice d |
C
choice C |
|
|
A lessee mistakenly treated an operating lease as a capital lease. How does this mistake impact the following at the inception of the lease?
A. Choice a B. Choice b C. Choice c D. Choice d |
B
choice B |
|
|
A lessor mistakenly treated a direct financing lease as an operating lease. How does this mistake impact the following at the end of the first year of the lease term?
A. Choice a B. Choice b C. Choice c D. Choice d |
A choice A
|
|
|
A lessor mistakenly treated a direct financing lease as an operating lease (the lessor uses straight-line depreciation). How does this mistake impact the following at the end of the first year of the lease term?
A. Choice a B. Choice b C. Choice c D. Choice d |
B choice B
|
|
|
A lessee must use which one of the following discount rates to value a capital lease?
A. Prime rate B. Implicit lease rate C. Lessee's incremental borrowing rate D. Lower of implicit lease rate or lessee's incremental borrowing rate |
D
lower of implicit lease rate or lessee's incremental borrowing rate |
|
|
When accounting for a capital lease, depreciation expense is equal to the
A. lease payments. B. principal portion of the lease payments. C. normal depreciation computed on the depreciable base of the asset. D. straight-line depreciation only on the full amount of the leased asset. |
C
normal depreciation computed on the depreciable base of the asset |
|
|
Executory costs of a lease are treated by the lessee as
A. capitalized costs of the lease. B. additional interest expense. C. operating expenses. D. deferred revenue. |
C operating exxpenses
|
|
|
If a lease contains a residual value guarantee, the lessee must
A. add the guaranteed amount to the present value of the minimum lease payments. B. add the present value of the guaranteed amount to the present value of the minimum lease payments. C. include the guaranteed amount in the minimum lease payments only if the lessee intends to keep the asset at the end of the lease. D. ignore the guaranteed amount if the lessee intends to keep the asset at the end of the lease. |
B
add the present value of the guaranteed to the present value of the mininum lease paymetns |
|
|
All the following statements about residual value guarantees are correct except residual value guarantees
A. protect lessors against lessees who abuse leased assets.
B. protect lessees against lessors who abuse leased assets. C. protects lessors against technological changes. D. protects lessors against marketplace changes. |
B
protect lessees against lessors who abuse leased assets |
|
|
table 12 1
Refer to Table 12-1. To value the lease asset, Pepper should use a discount rate of A. 10%. B. 11%. C. 12%. D. prime rate. |
A 10%
|
|
|
Refer to Table 12-1. The Pepper lease is a/an
A. operating lease because the lease value is less than 90% of the fair value of the asset. B. capital lease because the lease value is 90% of the fair value of the asset. C. operating lease because the asset reverts to Blue at the end of the lease. D. capital lease because the lease term is more than 75% of the life of the asset. |
D
capital lease because the lease term is more than 75% of the life of the asset |
|
|
Refer to Table 12-1. Upon acquisition, the leased equipment will be valued on the balance sheet at
A. $144,475. B. $157,469. C. $175,000. D. $250,000. |
B
157469 |
|
|
Refer to Table 12-1. The lease liability will be valued on the balance sheet at
A. $144,475. B. $157,469. C. $175,000. D. $250,000. |
B
157469 |
|
|
Refer to Table 12-1. The entry to record this lease on Pepper ‘s books is
A. B. C. D. |
B
ee question # 61 |
|
|
Refer to Table 12-1. At the end of Year 1, Pepper will make a payment of $30,000. Which one of the following entries will properly record this payment?
A. B. C. D. |
C
First year interest = $157,469 .1 = $15,747 |
|
|
Refer to Table 12-1. How much straight-line depreciation expense will Pepper record for Year 1?
A. $14,765 B. $15,362 C. $15,747 D. $17,500 |
A
14765 |
|
|
Refer to Table 12-1. If the equipment is worth $12,500 at the end of the lease, Pepper will make which one of the following journal entries?
A. B. C. D. No entry required. |
B
|
|
|
Refer to Table 12-1. If the equipment is worth $7,500 at the end of the lease, Pepper will make which one of the following journal entries?
A. B. C. D. No entry required. |
C
|
|
|
Over the life of a lease, the amount charged to expense is
A. greater for an operating lease. B. greater for a capital lease. C. the same for a capital or operating lease. D. less for a capital lease. |
C
the same for a capital or operating lease |
|
|
The difference between the expense charged with a capital lease and an operating lease is
A. the amount of total expense, with a capital lease higher than an operating lease. B. the amount of total expense, with an operating lease higher than a capital lease. C. the number of years that recognize expense. D. the timing of the expense recognition |
D the timing of the expense recognition
|
|
|
To adjust for distortions that arise from off-balance sheet leases when comparing among firms, analysts rely on
A. the balance sheet. B. the income statement. C. the statement of stockholders' equity. D. required footnote disclosures |
D
required foornote disclosures |
|
|
. Which one of the following ratios deteriorates with the capitalization of a lease?
A. Current ratio B. Return on equity C. Inventory turnover D. Common earnings leverage |
A
current ratio |
|
|
If a car dealership leases cars for four years with guaranteed purchase options, guaranteed residual values, and insured financing agreements, these leases are treated as
A. operating leases. B. capital leases. C. sales-type leases. D. direct-financing leases |
C
sales type leases |
|
|
. Refer to Table 12-2. Blue Manufacturing treats a lathe lease as a/an
A. operating lease. B. capital lease. C. sales-type lease. D. direct-financing lease. |
C
sales type leases |
|
|
Refer to Table 12-2. What is the manufacturing profit of Blue Manufacturing on a leased lathe?
A. $7,000 B. $8,500 C. $10,500 D. $17,500 |
A
7000 |
|
|
Refer to Table 12-2. What is the financing profit of Blue Manufacturing on a leased saw?
A. $7,000 B. $8,500 C. $10,500 D. $17,500 |
C
10500 |
|
|
SFAS No. 13 defines lessors' treatment of leases according to Type I and Type II characteristics. Type I characteristics are linked to
A. the critical event criteria for expense recognition. B. the critical event criteria for revenue recognition. C. measurement of collectibility for revenue recognition. D. measurement of historical cost. |
B
the critical event criteria for revenue recognition |
|
|
SFAS No. 13 defines lessors' treatment of leases according to Type I and Type II characteristics. Type II characteristics are linked to
A. the critical event criteria for expense recognition. B. the critical event criteria for revenue recognition. C. measurement of collectibility for revenue recognition. D. measurement of historical cost. |
C
measurement of collectibility for revenue recognition |
|
|
Refer to Table 12-3. On Ray's book, this lease is treated as a/an
A. operating lease. B. capital lease. C. direct financing capital lease. D. sales-type capital lease. |
A
operating lease |
|
|
Refer to Table 12-3. On Ford's books, this lease is treated as a/an
A. operating lease. B. capital lease. C. direct financing capital lease. D. sales-type capital lease. |
B
capital lease |
|
|
Refer to Table 12-3. Ford uses which one of the following interest rates to record this lease?
A. Use 8.5% because it is the lessor's incremental borrowing rate. B. Use 9.0% because it is the lessee's incremental borrowing rate. C. Use 10.0% because it is the implicit lease rate of return to the lessor. D. Use 9.0% unless the fair value of the equipment is less than PV of the lease at 9% discount rate, when the rate must be computed. |
D
Use 9.0% unless the fair value of the equipment is less than PV of the lease at 9% discount rate, when the rate must be computed. |
|
|
Refer to Table 12-3. Assuming that the lease is a capital lease for Ray, which one of the following interest rates will Ray use to record this lease?
A. Use 8.5% because it is the lessor's incremental borrowing rate. B. Use 9.0% because it is the lessee's incremental borrowing rate. C. Use 10.0% because it is the implicit lease rate of return to the lessor. D. Use 9.0% unless the fair value of the equipment is less than present value of the lease at 9% discount rate. In this case, one must compute the rate. |
C
Use 10.0% because it is the implicit lease rate of return to the lessor. |
|
|
Refer to Table 12-4. For Equity Leasing, this is treated as a/an
A. operating lease. B. capital lease. C. direct financing capital lease. D. sales-type capital lease. |
C
direct financing capital leases |
|
|
Refer to Table 12-4. For Matty, this lease is treated as a/an
A. operating lease. B. capital lease. C. direct financing capital lease. D. sales-type capital lease. |
B
capital lease |
|
|
Refer to Table 12-4. Equity records this lease with which one of the following journal entries?
A. B. C. D. |
B
|
|
|
Refer to Table 12-4. With which one of the following entries will Matty prepare to record the lease of the tractor on January 1, 2008?
A. B. C. D. |
A
Matty must use the lower of fair value or the present value of the lease payments. Fair value of $100,000 is less than the present value of $102,607 |
|
|
. Refer to Table 12-4. With which of the following entries will Equity Leasing prepare to record the receipt of the first payment on December 31, 2008?
A. B. C. D. |
D
|
|
|
Refer to Table 12-4. With which of the following entries will Equity Leasing prepare to record the revenue earned on December 31, 2008?
A.
B.
C.
D.
|
C
|
|
|
lessors books
. Refer to Table 12-4. If Matty's incremental borrowing rate is 11%, what interest rate will Matty use to account for this lease? A. 9% B. 10% C. 11% D. Cannot be determined from information given. |
B
10% PVIFA = PV/payment amount = $100,000/$26,379.74 = 3.79079 10% |
|
|
Refer to Table 12-4. With which one of the following entries will Matty prepare to record the payment on December 31, 2008?
A.
B.
C.
D.
|
A
Interest Expense = $100,000 (see question # 80) x 10% (see question # 83). |
|
|
On January 1, 2008, Lessee Company entered into a five-year lease which required annual payments of $60,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments was $250,192; the applicable discount rate was 10%. Lessee Company treated the lease as a capital lease. What is the balance of Lessee Company's lease liability as of December 31, 2008?
A. $209,211 B. $275,211 C. $190,192 D. $149,211 |
A
$209,211= $250,192 - $60,000 + $19,019 (190,192 x .10) |
|
|
On January 1, 2008, Lessee Company entered into a five-year lease which required annual payments of $120,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments was $500,384; the applicable discount rate was 10%. Lessee Company treated the lease as a capital lease. What is the balance of Lessee Company's lease liability immediately after the January 1, 2009 payment was made?
A. $430,422 B. $260,384 C. $298,422 D. $380,384 |
C
$298,422 = $500,384 - $120,000 + $38,038 (380,384 x 10%) - $120,000 |
|
|
. On January 1, 2008, Lessee Corporation entered into a ten-year lease. The lease terms required annual year-end payments of $160,000. The lease agreement does not contain either a bargain purchase option or a transfer of title. The fair value of the equipment at the inception of the lease was $1,100,000; the leased assets estimated life was fourteen years. Lessee Corporation's incremental borrowing rate was 10%; the implicit rate of interest was 12%. Applicable time value of money values are as follows:
Lessee Corporation should initially capitalize the lease at what amount?
A. $0, the lease should not be capitalized B. $983,040 C. $1,081,440 D. $904,000 |
A
0 the lease should not be capitalized The lease does not meet any of the criteria applicable to the lessee, therefore it is an operating lease |
|
|
On January 1, 2009, Lessor Corporation entered into a lease which was treated as a sales-type lease by Lessor Corporation; the leased asset's book value within Lessor Corporation's financial statements was $350,000 as of January 1, 2009. The lease required the lessee to make ten annual payments of $50,000; the first payment was due at the beginning of the lease term. The present value of the minimum lease payments was $362,344. The implicit rate of interest was 8%, while the lessee's incremental borrowing rate was 10%. The increase in Lessor Corporation's net income for the year ended December 31, 2009 was approximately
A. $43,578. B. $37,332. C. $41,332. D. $24,988. |
B
$37,332 = $12,344 (Gross Profit: $362,344 - $350,000) + $24,988 (Interest Revenue: $312,344 x 8%). |
|
|
The difference in the lessor's income recognition over the life of the lease, between an operating lease and a capital lease is
A. zero. B. the amount of the interest revenue. C. the financing revenue minus the depreciation. D. the depreciation expense. |
A
zero |
|
|
Which of the following statements pertaining to lease accounting is not correct?
A. The lessee will depreciate a leased asset either over the lease term or the leased asset's useful life dependent upon which of the SFAS 13 lease capitalization criteria is (are) met. B. The lessee ignores a guaranteed salvage value when calculating depreciation expense associated with a capital lease. C. The lessor's annual income will decrease regardless of whether the lease is a sales-type lease or a direct financing lease. D. The gross profit recorded by the lessor is the same whether or not the residual value is guaranteed by the lessee. |
B
the lessee ignores a guaranteed salvage value when calculating depreciation expense associated with a capital lease |
|
|
Which of the following statements pertaining to lease accounting is not correct?
A. For particular lease agreement, the amount of interest expense recorded by the lessee can be different than the amount of interest revenue recorded by the lessor during the same time period. B. The current ratio will be decreased over the lease term if a lessor treats a lease as a capital lease rather than an operating lease. C. It is very challenging for different firms to treat virtually identical leases dissimilarly due to the fact that SFAS 13 lease capitalization criteria is difficult to circumvent. D. The SFAS 13 disclosures pertaining to operating leases require the lessee to disclose what the impact on the financial statements would have been if the lease would have been treated as a capital lease. |
D.
The SFAS 13 disclosures pertaining to operating leases require the lessee to disclose what the impact on the financial statements would have been if the lease would have been treated as a capital lease. |
|
|
If a company sells an asset for a profit of $175,000 and immediately leases it back with a capital lease, the gain is recognized
A. immediately as an ordinary gain. B. immediately as an extraordinary gain. C. over the life of the lease in proportion to the rental payment. D. over the life of the lease using the same rate and life used to amortize the leased asset. |
D
over the life of the lease using the same rate and life used to amortize the leased asset. |
|
|
With a leveraged lease, the lessor must treat the lease as a/n
A. operating lease. B. capital lease. C. direct financing capital lease. D. sales-type capital lease. |
C
direct finanincng capital lease |
|
|
The most straightforward method for making lessees' balance sheet data comparable is to treat all leases as if they were
A. operating leases. B. capital leases. C. direct financing capital leases. D. sales-type capital leases. |
B
capital lease |
|
|
Which of the following is a reason why lease accounting under GAAP should be reconsidered?
A. It is too easy for firms to circumvent lease capitalization criteria. B. The SEC has stated that the FASB should reexamine lease accounting. C. Operating leases are a popular means of off-balance sheet financing. D. Each of the above are substantiated reasons. |
D
each of the above are substaiated reasons |
