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Exam 15: Leases

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Question 1

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Use the following to answer questions Refer to the following lease amortization schedule.The 10 payments are made annually starting with the inception of the lease.Title does not transfer to the lessee and there is no bargain purchase option or guaranteed residual value.The asset has an expected economic life of 12 years.The lease is noncancelable. -What is the effective annual interest rate?

A) 9%.
B) 10%.
C) 11%.
D) 12%.

E) B) and C)
F) A) and B)

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Question 2

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If the leaseback portion of a sale-leaseback transaction is classified as a capital lease:

A) Any gain is deferred and recognized as a reduction of rent expense.
B) Any gain is deferred and recognized as a reduction of depreciation.
C) Any gain is recognized at the lease's inception.
D) There can be no gain.

E) B) and C)
F) All of the above

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Question 3

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Of the four criteria for a capital lease,which two are not applied if the lease begins during the final quarter of the asset's useful life?

Listed below are several terms and phrases associated with leases.Pair each item from List A (by letter)with the item from List B that is most appropriately associated with it.

Which of the following statements characterizes a sale-leaseback arrangement?

Use the following to answer questions Refer to the following lease amortization schedule.The five payments are made annually starting with the inception of the lease.A $2,000 bargain purchase option is exercisable at the end of the five-year lease.The asset has an expected economic life of eight years. -What would the lessee record as annual depreciation on the asset using the straight-line method,assuming no residual value?

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.

L Corp.recorded a capital lease in February using an annuity due present value table.The company's December 31 statement of cash flows using the indirect method will report:

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 matched with the interest revenues they help generate in:

Distinguishing between operating and capital leases is due in large part to the accounting concept of:

A noncancelable lease contains a bargain purchase option.The fair value of the asset exceeds the lessor's cost of the asset.Collectibility of the lease payments is assured and there are no material cost uncertainties surrounding the lease.Therefore,the lease will be accounted for by the lessor as a(n) :

Which of the following is not among the criteria for classifying a lease as a capital lease?

Discuss the interest rates used by the lessee and the lessor for determining the present value of a capital lease.

If the lessor records deferred rent revenue at the beginning of a lease term,the lease must:

B Corp.has a debt/equity ratio of 2 to 1.Not including any indirect effects on earnings,the debt/equity ratio is increased when B records:

Use the following to answer questions Refer to the following lease amortization schedule.The 10 payments are made annually starting with the inception of the lease.Title does not transfer to the lessee and there is no bargain purchase option or guaranteed residual value.The asset has an expected economic life of 12 years.The lease is noncancelable. -What would the lessee record as annual depreciation on the asset using the straight-line Method?

What are the three types of expenses that a lessee experiences with a capital lease?

What lease disclosures are required of the lessor and lessee?

In a sale-leaseback arrangement,the lessee is also:

Savinsky Industries prepares its financial statements using IFRS and reports its leases as finance leases.If the company reported under U.S.GAAP,is it possible that some of the leases could be classified as an operating lease? Explain