Chapter 15 Learnsmart

Front 1

The journal entry to record the lessee's payment on an operating lease would include a debit to:

Interest expense; lease obligation; rent expense; depreciation expense

Back 1

Rent expense

Front 2

The two additional criteria that apply only to the lessor in determining whether a lease is classified as a capital lease are:

Back 2

Any additional costs to be incurred by the lessor are reasonably predictable & the collectibility of lease payments must be reasonably predictable

Front 3

__________ ____________ is an estimate of a leased asset's commercial value at the end of the lease term.

Back 3

Residual value

Front 4

Rights and risk of ownership are retained by the lessor in a _______ lease.

Back 4

Operating

Front 5

Rights and risks of ownership are transferred to the lessee in a ________ lease.

Back 5

Capital

Front 6

If a lease does not meet any of the four criteria to be classified as a capital lease, it is classified as a(n)____________.

Back 6

Operating lease

Front 7

Which of the following does not require interest accrual: Lease, Bond, Note, Equity

Back 7

Equity

Front 8

On January 1, year 1, Doern Corp leased equipment to Kale in on a sales type lease. The PV of the minimum lease payments was $240K and the interest rate was 10%. The lessor's cost to make the equipment was $185K. Doern uses the net method to record the sales type lease. What is the gross profit on the lease?

Back 8

$55,000 (240K-185K)

Front 9

Owner of the rental property is called the Lessee or the Lessor?

Back 9

Lessor

Front 10

User of the rental property is called the Lessee or the Lessor?

Back 10

Lessee

Front 11

A lease that is essentially an installment purchase is classified as a(n) __________ lease.

Back 11

Capital

Front 12

A bargain price is sufficiently below the property's expected __________ __________.

Back 12

fair value

Front 13

Which of the following occur in a sale-leaseback transaction: (select all that apply) The lessee receives cash from the sale of the asset; The lessee pays periodic rental payments; The lessee receives periodic rental income; The lessor receives cash form the sale of the asset

Back 13

The lessee receives cash from the sale of the asset and The lessee pays periodic rental payments.

Front 14

Which of the following is one of the four criteria used to determine if a lease is a capital lease: The economic life of the asset is 90% or more of the lease term; The lease term is 75% or more of the economic life of the asset; The PV of the minimum lease payments is greater than 75% of the asset's FV; There is an unguaranteed residual value.

Back 14

The lease term is 75% or more of the economic life of the asset.

Front 15

A lease is depreciated over its useful life when

Back 15

A bargain purchase option is present or when ownership transfers at the end of the lease term.

Front 16

A basic concept of classifying a lease is substance over

Back 16

form.

Front 17

T/F The lessor subtracts the future value of the BPO price from the amount to be recovered to determine the amount to be recovered through rental payments.

Back 17

False, the lessor subtracts the PV not the FV

Front 18

A _________ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time

Back 18

lease

Front 19

Required disclosures for lessees & lessors:

Back 19

Future payments in the aggregate; future payments in each of the next 5 years; & description of the leasing arrangements

Front 20

T/F The lessee, but not the lessor, include a guaranteed residual value in the computation of minimum lease payments

Back 20

False. They both do

Front 21

A __________ ___________ _____________ is a provision in a lease contract that gives the lessee the option of buying the leased property at a price significantly lower than the expected FV of the property at the end of the lease term.

Back 21

Bargain purchase option

Front 22

The amount capitalized by the lessee for a capital lease is the PV of the minimum lease payments or the asset's FV, whichever is ________.

Back 22

lower

Front 23

Initial direct costs for the lessor include:

Back 23

Fees for preparing lease documents; commissions; & legal fees

Front 24

Whether the usual risks and rewards of ownership have been transferred in a lease is

Back 24

the essential question in determining how to account for the lease.

Front 25

A sales-type lease is different from a direct financing lease because at the inception of the lease additional entries are required for what accounts?

Back 25

sales and cost of goods sold

Front 26

Under IFRS, the lessor uses the _______interest rate to calculate the PV of the minimum lease payments, while under GAAP, the lessee uses the ________________ ______________ rate.

Back 26

implicit; incremental borrowing

Front 27

Sometimes a lease agreement includes a commitment by the lessee that the lessor will recover a specified amount when the asset is returned. This is known as

Back 27

guaranteed residual value

Front 28

The estimated time property is expected to be usable for its intended purpose, with normal maintenance and repairs, at the inception of the lease is the __________ life of the leased property.

Back 28

economic

Front 29

Executory costs in a lease include:

Back 29

Insurance costs; maintenance costs and taxes

Front 30

Is GAAP rules-based or principles-based accounting?

Back 30

Rules-based

Front 31

The right of use model has been agreed upon by the FASB and IASB for ____________ accounting.

Back 31

lease

Front 32

In GAAP, the lease classification by a lessor are:

Back 32

operating and capital

Front 33

A bargain ___________ option gives the lessee a rental payment sufficiently lower than the fair rental value of the property

Back 33

renewal

Front 34

The PV of the bargain purchase option is added to the PV of the periodic lease payments to arrive at the PV of the minimum lease payments for the

Back 34

Lessee & lessor

Front 35

What three things are included in the minimum lease payments for the lessee:

Back 35

The total of periodic rental payments; any bargain purchase option and any guaranteed residual value

Front 36

The _________ rate is the desired rate of return for the lessor when determining the lease payments.

Back 36

effective

Front 37

The incremental borrowing rate is

Back 37

The rate the lessee would pay a bank to borrow funds

Front 38

A bargain purchase option is a provision in a lease contract that

Back 38

gives the lessee the right to purchase the leased asset at a price significantly less than the expected FV of the property.

Front 39

___________ and _________ are included in the lessor's gross investment in the lease.

Back 39

Guaranteed residual value and bargain purchase option

Front 40

A lessee will have rent expense for an operating lease, whereas a lessee will have _________expense and _______ expense in a capital lease.

Back 40

interest;depreciation

Front 41

In addition to the four criteria applicable to the lessee in lease accounting, the lessor must also satisfy the conditions of _______ ________ to record the lease as a direct financing or sales-type lease.

Back 41

revenue recognition

Front 42

The lessor's gross investment in the lease is the total of periodic rental payments ________ any residual value. Plus or Minus

Back 42

plus

Front 43

The cost of a leasehold improvement is depreciated over is _________ to the lessee

Back 43

useful life

Front 44

A lessee signs a lease that is appropriately classified as a capital lease. At the inception of the lease, the JE should include a credit to

Back 44

lease payable

Front 45

________ & ___________ are excluded from the minimum lease payment computation by the lessee.

Back 45

Unguaranteed residual value & residual value guaranteed by a third-party

Front 46

__________ is the number one method of external financing of corporate assets in the US.

Back 46

leasing

Front 47

Initial direct costs for an operating lease should be ___________ by the lessor.

Back 47

capitalized

Front 48

Items included in the minimum lease payments by the lessor:

Back 48

Bargain purchase option; residual value guaranteed by third party; guaranteed residual value & periodic rental payments

Front 49

From an accounting standpoint, legal ownership of a leased asset is ______ to the accounting method used.

Back 49

irrelevant

Front 50

Deferring a gain and recognizing it over the lease term in a sale-leaseback transaction follows the basic accounting concept of _____________ ______________ ___________.

Back 50

Substance over form

Front 51

The most common reasons for a sale-leaseback transaction are to:

Back 51

Refinance at a lower rate & to generate cash

Front 52

The lessor's gross investment in leases is reported in

Back 52

the financial statement disclosure notes

Front 53

What criteria are included to determine if a lease of land is a capital lease?

Back 53

The lease contains a bargain purchase option; Title transfers at the end of the lease term

Front 54

The gain on a sale-leaseback classified as an operating lease is deferred and recognized over the lease term as

Back 54

a reduction of rent expense

Front 55

A lease can be accounted for in what two ways?

Back 55

As a rental agreement & as a purchase/sale agreement with debt financing

Front 56

A(n) _____________ residual value requires the asset's value to be a specific amount at the end of the lease term.

Back 56

guaranteed

Front 57

A(n) ____________ residual value does not require the asset value to be a certain value when the asset is returned to the lessor.

Back 57

unguaranteed

Front 58

The lessor reports all cash receipts as cash inflows from operating activities on a __________ lease.

Back 58

sales-type

Front 59

When the initial rent payment or several rent payments are waived, it's referred to as a rent __________.

Back 59

abatement

Front 60

When the lessor calculates the periodic lease payments, the PV of the bargain purchase option should be

Back 60

subtracted from the amount to be recovered through periodic rental payments

Front 61

Included in the minimum lease payments for the lessee

Back 61

guaranteed residual value & bargain purchase option

Front 62

Items included in the lease receivable by the lessor:

Back 62

periodic rental payments; unguaranteed residual value; guaranteed residual value & bargain purchase option

Front 63

Debit lease receivable for the PV of lease payments plus

Back 63

the PV of the unguaranteed residual value

Front 64

Debit cost of goods sold for the lessor's cost of the equipment less the

Back 64

unguaranteed residual value

Front 65

Credit sales revenue for sales __________ the unguaranteed residual value. Plus/Less

Back 65

less

Front 66

Credit inventory the lessor's cost of

Back 66

equipment

Front 67

When the lessee's incremental borrowing rate is less than the lessor's implicit rate, which rate should be used to calculate the PV of the minimum lease payments for the lessee?

Back 67

lessee's incremental borrowing rate

Front 68

In IFRS, a lease that transfers substantially all the risks and rewards of ownership is called a ___________ lease.

Back 68

finance

Front 69

When a lessee incurs maintenance costs for leased equipment, the lessee should debit

Back 69

maintenance expense

Front 70

A capital lease of equipment for 5 years or the purchase of equipment on an installment note repaid over 5 years would require a _______ to equipment and a ________ to long-term debt.

Back 70

debit/credit

Front 71

What is the appropriate treatment for contingent rental payments?

Back 71

Report in the disclosure notes

Front 72

Under IFRS the accounting treatment for sale-leasebacks classified as an operating lease the gain on sale is recognized

Back 72

immediately

Front 73

Under GAAP the accounting treatment for sale-leasebacks classified as an operating lease the gain on sale is recognized

Back 73

Amortized over the life of the lease term

Front 74

When leased property includes both land and a building and transfers ownership at the end of the lease term, the PV of the minimum lease payments is

Back 74

allocated between the leased land and the leased building

Front 75

A lessee recognized payment of a refundable security deposit as a

Back 75

receivable

Front 76

For a capital lease, the lessee should report the interest paid on the lease as a(n) ______ activity and the repayment of the lease obligation as a(n) activity on the statement of cash flows.

Back 76

operating/financing

Front 77

The lease term includes

Back 77

the noncancelable term of the lease & any periods covered by bargain renewal options

Front 78

The lessee and the lessor must report in financial statement disclosure notes

Back 78

both the net and gross amounts of leases