acct 253 ch 21

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  1. A lease that transfers the benefits and risks of ownership should be capitalized.
    True
  2. Minimum lease payments do not include the guaranteed residual value.
    False
  3. Financial statement or note disclosure is required for all operating leases that have a non-cancelable term in excess of one year.
    True
  4. If a lease contains a dealer's profit, it is classified as a direct financing lease for the lessor.
    False
  5. A lease that is cancelable cannot be recorded as a capital lease.
    True
  6. A lease where the present value of the minimum lease payments exceed 80% of the fair value of the asset must be capitalized.
    False
  7. Executory costs do represent payment on or reduction of the lease obligation.
    False
  8. The present value of the unguaranteed residual value is included in the calculation of the minium lease payments for the lessee.
    False
  9. For a capital lease with a bargain purchase option, the lessee should depreciate the capitalized asset based on the lease term as opposed to the economic life of the asset.
    False
  10. Under the operating lease method, the lessee will depreciate the asset over the lease term if less than the economic life of the asset.
    False
  11. Which of the following are not includable in executory costs?
    A. taxes
    B. insurance
    C. minimum rental payments
    D. maintenance.
    C. minimum rental payments
    (this multiple choice question has been scrambled)
  12. Which of the following is not a criterion for a lease to be recorded as a capital lease?
    A. the lease is cancelable
    B. the lease term is at lease 75% of the asset's useful life
    C. there is a bargain purchase option
    D. there is transfer of ownership.
    A. the lease is cancelable
    (this multiple choice question has been scrambled)
  13. Which of the following is included in the minimum lease payment?
    A. insurance
    B. maintenance costs
    C. bargain purchase option
    D. property taxes
    C. bargain purchase option
    (this multiple choice question has been scrambled)
  14. The lessee computes the present value of the minimum lease payments using the lessee's:
    A. effective interest rate
    B. stated contract rate
    C. incremental borrowing rate
    D. minimum discount rate
    C. incremental borrowing rate
    (this multiple choice question has been scrambled)
  15. The lessee may not capitalize property for more than its:
    A. historical cost
    B. book value
    C. liquidation value
    D. fair value
    D. fair value
    (this multiple choice question has been scrambled)
  16. Which of the following is not a benefit to the lessor?
    A. off-balance sheet financing.
    B. interest revenue
    C. tax incentives
    D. high residual value
    A. off-balance sheet financing.
    (this multiple choice question has been scrambled)
  17. Which of the following is not one of the classifications for leases from the lessor's viewpoint?
    A. sales type
    B. direct financing
    C. operating
    D. off-balance sheet
    D. off-balance sheet
    (this multiple choice question has been scrambled)
  18. The distinction for the lessor between a direct financing lease or a sale-type lease is the presence or absence of:
    A. executory costs
    B. manufacturer or dealer's profit
    C. minimum lease payments
    D. guaranteed residual value
    B. manufacturer or dealer's profit
    (this multiple choice question has been scrambled)
  19. Any lease that does not qualify as a direct financing lease or a sales-type lease is classified and accounted for by the lessor as a(n):
    A. operating lease
    B. temporary lease
    C. residual lease
    D. capital lease
    A. operating lease
    (this multiple choice question has been scrambled)
  20. When depreciable asset is leased under an operating lease, the lessor:
    A. records depreciation in the normal manner
    B. never recognized depreciation
    C. defers depreciation until the lease expires
    D. must use activity based depreciation
    A. records depreciation in the normal manner
    (this multiple choice question has been scrambled)
  21. All of the following are advantages of leasing except
    A.. elimination of the risk of obsolescence
    B. off-balance sheet financing.
    C. less costly financing
    D. 100% financing at fixed rates
    A.. elimination of the risk of obsolescence
    (this multiple choice question has been scrambled)
  22. The FASB agrees with which of the following viewpoints regarding capitalization of leases?
    A. capitalize those leases similar to installment purchases
    B. capitalize firm leases where the penalty for nonperformance is substantial
    C. capitalize all long term leases
    D. do not capitalize any leased assets
    A. capitalize those leases similar to installment purchases
    (this multiple choice question has been scrambled)
  23. The lessee would classify a lease as a capital lease if the
    A. lease contains a purchase option
    B. lease transfers ownership of the asset to the lessor
    C. lease term is equal to 75% or more of the economic life of the leased asset
    D. minimum lease payments equal or exceed 90% of the fair value of the leased asset.
    C. lease term is equal to 75% or more of the economic life of the leased asset
    (this multiple choice question has been scrambled)
  24. Minimum lease payments include all of the following except
    A. a bargain purchase option
    B. executory costs
    C. the minimum rental payments
    D. a guaranteed residual value
    B. executory costs
    (this multiple choice question has been scrambled)
  25. The lessee records a capital lease as an asset and a liability at the
    A. total amount of the minimum lease payments
    B. fair market value of the leased asset at the lease inception
    C. present value of the minimum lease payments
    D. lower of the present value of the minimum lease payments or the fair market value of the leased asset
    D. lower of the present value of the minimum lease payments or the fair market value of the leased asset
    (this multiple choice question has been scrambled)
  26. All of the following are difference that occur if a lease is classified as a capital lease instead of an operating lease except:
    A. a lower income early in the life of the lease
    B. an increase in the amount of reported debt
    C. an increase in the amount of total assets
    D. a decrease in the amount of total expenses
    D. a decrease in the amount of total expenses
    (this multiple choice question has been scrambled)
  27. A lease that involves a manufacturer's or dealer's profit is a(n)
    A. operating lease
    B. capital lease
    C. sales-type lease
    D. direct financing lease
    C. sales-type lease
    (this multiple choice question has been scrambled)
  28. Unearned interest revenue is
    A. the difference between the fair market value of the property and the cost of the property
    B. the difference between the net investment and the fair value of the property
    C. amortized to revenue over the lease term by using the effective interest method
    D. recorded in both capital and operating leases
    C. amortized to revenue over the lease term by using the effective interest method
    (this multiple choice question has been scrambled)
  29. Lease payments recievable includes all of the following except
    A. all of the options are included
    B. unguaranteed residual value
    C. a penatly for failure to renew
    D. a bargain purchase option
    A. all of the options are included
    (this multiple choice question has been scrambled)
  30. In computing lease payments, the amount to be recovered by the lessor is the
    A. fair market value of the leased asset less the asset's residual value
    B. fair market value of the leased asset less the present value of the asset's residual value
    C. cost of the leased asset less the asset's residual value
    D. cost of the leased asset less the present value of the asset's residual value
    B. fair market value of the leased asset less the present value of the asset's residual value
    (this multiple choice question has been scrambled)
  31. The computation of the lessee's capitalized amount is the sum of the
    A. annual rental payments and the present value of the guaranteed residual value
    B. present value of the annual rental payments and the undiscounted guaranteed residual value
    C. present value of the annual rental payments and the present value of the guaranteed residual value
    D. annual rental payments and the guaranteed residual value
    C. present value of the annual rental payments and the present value of the guaranteed residual value
    (this multiple choice question has been scrambled)
  32. The lessor includes the leased asset's residual value in the amount to be recovered through lease payments if the residual value is
    A. unguaranteed
    B. less than the purchase option
    C. guaranteed or unguaranteed
    D. guaranteed
    C. guaranteed or unguaranteed
    (this multiple choice question has been scrambled)
  33. Which one of the following amounts would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value?
    A. gross profit
    B. sales price of the asset
    C. lease receivable
    d. none of the above
    B. sales price of the asset
    (this multiple choice question has been scrambled)
  34. The lessor expenses initial direct costs in the year of incurrence in a(n)
    A. direct financing lease and sales-type lease
    B. operating lease
    C. direct financing lease
    D. sales-type lease
    D. sales-type lease
    (this multiple choice question has been scrambled)
  35. All of the following are disclosures required of the lessor except
    A. total contingent rentals included in income for each period for which an income statement is presented
    B. all of the options are required disclosures
    C. future minimum lease payments to be received for each of the 5 succeeding years
    D. the components of the net investment in sales-type and direct financing leases as of each balance sheet date.
    B. all of the options are required disclosures
    (this multiple choice question has been scrambled)
  36. Which of the following is an advantage of leasing?
    A. off balance sheet financing
    B. 100% financing at fixed rates
    C. less costly financing
    D. all of these
    D. all of these
    (this multiple choice question has been scrambled)
  37. Which of the following best describes current practice in accounting for leases?
    A. leases similar to installment purchases are capitalized
    B. leases are not capitalized
    C. all long-term leases are capitalized
    D. all leases are capitalized
    A. leases similar to installment purchases are capitalized
    (this multiple choice question has been scrambled)
  38. What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?
    A. the lessee must decrease the present value of the minimum lease payments by the present value of the option price
    B. the lessee must increase the present value of the minimum lease payments by the present value of the option price
    C. the minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price
    D. no impact as the option does not enter into the transaction until the end of the lease term
    B. the lessee must increase the present value of the minimum lease payments by the present value of the option price
    (this multiple choice question has been scrambled)
  39. The amount to be recorded as the cost of the asset under capital lease is equal to the
    A. present value of the minimum lease payments
    B. present value of the minimum lease payments or the fair value of the asset, whichever is lower
    C. carrying value of the asset on the lessor's books
    D. present value of the minimum lease payments plus the present value of any unguaranteed residual value
    B. present value of the minimum lease payments or the fair value of the asset, whichever is lower
    (this multiple choice question has been scrambled)
  40. The methods of accounting for a lease by the lessee are
    A. operating and capital lease methods
    B. operating, sales and capital lease method
    C. operating and leverage lease methods
    D. none of these
    A. operating and capital lease methods
    (this multiple choice question has been scrambled)
  41. Minimum lease payments may include a
    A. guaranteed residual value
    B. any of these
    C. penalty for failure to renew
    D. bargain purchase option
    B. any of these
    (this multiple choice question has been scrambled)
  42. Executory costs include
    A. all of these
    B. maintenance
    C. property taxes
    D. insurance
    A. all of these
    (this multiple choice question has been scrambled)
  43. In computing the present value of the minium lease payments, the lessee should
    a. use its incremental borrowing rate in all cases
    b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee
    c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee
    d. none of these
    • c. use either its incremental borrowing rate or the implicit rate of the
    • lessor, whichever is lower, assuming that the implicit rate is known to
    • the lessee
  44. In computing depreciatino of a leased asset, the lessee should subtract
    A. an unguaranteed residual value and depreciate over the life of the asset
    B. a guaranteed residual value and depreciate over the term of the lease
    C. an unguaranteed residual value and depreciate over the term of the lease
    D. a guaranteed residual value and depreciate over the life of the asset
    B. a guaranteed residual value and depreciate over the term of the lease
    (this multiple choice question has been scrambled)
  45. In the earlier years of a lease, from the lessee's perspective, the use of the
    A. capital method will cause debt to increase, compared to the operating method
    B. operating method will cause income to decrease, compared to the capital method
    C. operating method will cause debt to increase, compared to the capital method
    D. capital method will enable the lessee to report higher income, compared to the operating method
    A. capital method will cause debt to increase, compared to the operating method
    (this multiple choice question has been scrambled)
  46. A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the
    A. life of the asset or the term of the lease, whichever is shorter
    B. asset's remaining economic life
    C. term of the lease
    D. life of the asset or the term of the lease, whichever is longer
    B. asset's remaining economic life
    (this multiple choice question has been scrambled)
  47. Based soley upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor?
    I transfers ownership by end of lease
    II contains bargain purchase option
    III collectiblility of Lease payments assured
    IV Any important uncertainties
    A. I & IV yes, II & III no
    B. I & IV no, II & III yes
    C. I no, II III & IV yes
    D. I yes, II III & IV no
    B. I & IV no, II & III yes
    (this multiple choice question has been scrambled)
  48. In a lease that is appropriately recorded as a direct financing lease by the lessor, unearned income
    A. should be amortized over the period of the lease using the interest method
    B. should be amortized over the period of the lease using the straight line method
    C. should be recognized at the lease's expiration
    D. does not arise
    A. should be amortized over the period of the lease using the interest method
    (this multiple choice question has been scrambled)
  49. In order to properly record a direct financning lease, the lessor needs to know how to calculate the lease recievable. The lease receivable in a direct financing lease is best defined as
    A. the amount of funds the lessor has tied up in the asset which is the subject of the direct financing lease
    B. the present value of minimum lease payments
    C. the difference between the lease payments receivable and the fair market value of the leased property
    D. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement
    B. the present value of minimum lease payments
    (this multiple choice question has been scrambled)
  50. If the residual value of a lease asset is guaranteed by a third party
    A. the 3rd party is also liable for any lease payments not paid by the lessee
    B. it is treated by the lessee as an additonal payment and by the lessor as realized at the end of the lease term
    C. it is treated by the lessee as no residual value
    D. the net investment to be recovered by the lessor is reduced
    B. it is treated by the lessee as an additonal payment and by the lessor as realized at the end of the lease term
    (this multiple choice question has been scrambled)
  51. The primary difference between a direct financing lease and a sales-type lease is the
    A. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements
    B. recognition of the manufacturer's or dealer's profit at the inception of the lease
    C. manner in which rental receipts are recorded as rental income
    D. amount of the depreciation recorded each year by the lessor
    B. recognition of the manufacturer's or dealer's profit at the inception of the lease
    (this multiple choice question has been scrambled)
  52. A lessor with a sales type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?
    A. the cost of the asset to the lessor, less the present value of any unguaranteed residual value
    B. the present value of the minimum lease payments plus the present value of the unguaranteed residual value
    C. the present value of the minimum lease payments
    D. the minimum lease payments plus the unguaranteed residual value
    C. the present value of the minimum lease payments
    (this multiple choice question has been scrambled)
  53. The lease liability account should be disclosed as
    A. deferred credits
    B. all noncurrent liabilities
    C. current portions in current liabilities and the remainder in noncurrent liabilities
    D. all current liabilities
    C. current portions in current liabilities and the remainder in noncurrent liabilities
    (this multiple choice question has been scrambled)
  54. When a company sells property and then leases it back, any gain on the sale should usually be
    A. recognized as a prior period adjustment
    B. recognized at the end of the lease
    C. recognized in the current year
    D. deferred and recognized as income over the term of the lease
    D. deferred and recognized as income over the term of the lease
    (this multiple choice question has been scrambled)
  55. Major reasons why a company may become involved in leasing to other companies is (are)
    A. all of these
    B. high residual values
    C. interest revenue
    D. tax incentives
    A. all of these
    (this multiple choice question has been scrambled)
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acct 253 ch 21
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acct 253 ch 21
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