ACC 232: CHAPTER 21
48 Cards in this Set
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Which of the following best describes current practice in accounting for leases?
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Leases similar to installment purchases are capitalized
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Major reasons why a company may become involved in leasing to other companies are
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Interest revenue, high residual values, and tax incentives
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Lease 1 does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease 2 does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated…
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Lease 1 (capital lease), Lease 2 (capital lease)
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In computing the present value of the minimum lease payments, the lessee should
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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
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The lessee records a capital as an asset and a liability at the:
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Lower of the present value of the minimum lease payments or the fair market value of the leased asset.
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All of the following are differences that occur if a lease is classified as a capital lease instead of an operating lease except:
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A decrease in the amount of total expenses
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A lease that involves a manufacturer's or dealer's profit is (an):
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Sales-type lease
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Lease payments receivable includes all of the following except:
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A bargain purchase option, a penalty for failure to renew, and unguaranteed residual value
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In computing lease payments, the amount to be recovered by the lessor is the:
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Fair market value of the leased asset less the present value of the asset's residual value
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The computation of the lessee's capitalized amount is the sum of the:
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Present value of the annual rental payments and the present value of the guaranteed residual value
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Which one of the following amount would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value?
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Sales price of the asset
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The lessor expenses initial direct costs in the year of incurrence in a(n):
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Sales-type lease
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The following are disclosures required of the lessor:
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Total contingent rentals included in income for each period for which an income statement is presented, the components of the net investment in sales-type and direct financing leases as of each balance sheet date, future minimum lease payments to be received for each of the five succeedin…
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All of the following statements about lease accounting under IFRS and U.S. GAAP are true except:
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IFRS requires a year-by-year breakout of payments related to leasing arrangements
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T or F: A lease that transfer the benefits and risks of ownership should be classified as an operating lease.
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False
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T or F: Minimum lease payments include both a guaranteed and an unguaranteed residual value.
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False
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T or F: Financial statement or note disclosure is required for all operation leases that have a noncancelable term in excess of one year.
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True
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T or F: If a lease contains a dealer's profit, it is classified as a direct financing lease for the lessor.
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False
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T or F: A lease that is cancelable cannot be recorded as a capital lease.
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True
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A lease where the present value of the minimum lease payments is substantially all of the fair value of the asset must be capitalized.
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False
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T or F: Executory costs represent payment on or reduction of the lease obligation.
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False
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T or F: The present value of the unguaranteed residual value is excluded in the calculation of the minimum lease payments for the lessee, but included when calculating depreciation expense.
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False
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T or F: 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.
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False
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T or F: Under the operating lease method, the lessee will depreciate the asset over the lease term if less than the economic life of the asset.
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False
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T or F: International Standard No. 17 (Accounting for leases) is more detailed and prescriptive than the corresponding U.S. GAAP on leases.
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False
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What is not a criterion for a lease to be recorded as a capital lease?
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The lease term is substantially all of the asset's useful life.
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What is included in the minimum lease payment?
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Bargain purchase option
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Which is not an advantage of leasing?
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Interest rates for leasing always lower
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The lessee may not capitalize property for more than its:
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Fair value
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What is not a benefit to the lessor>
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Off-balance sheet financing
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Which of the following is not one of the classifications for lease from the lessor's viewpoint?
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Off-balance sheet
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The distinction for the lessor between a direct financing lease or a sales-type lease is the presence or absence of:
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Manufacturer or dealer's profit
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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):
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Operating lease
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When a depreciable asset is leased under an operating lease, the lessor:
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Records depreciation in the normal manner
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Which of the following best describes current practice in accounting for leases?
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Leases similar to installment purchases are capitalized.
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In computing the present value of the minimum lease payments, the lessee should?
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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.
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The methods of accounting for a lease by the lessee are
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Operating and capital lease methods
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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):
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Operating lease
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Which of the following would not be included in the Lease Receivable account?
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Penalty for failure to renew (if any), guaranteed residual value (if any), a bargain purchase option (if any)
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Which of the following statements is correct?
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In a direct-financing lease, initial direct costs are added to the net investment in the lease; in a sales-type lease, initial direct costs are expensed in the year of incurrence; for operating lases, initial direct costs are deferred and allocated over the lease term.
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All of the following are disclosures required of the lessor except
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Amounts receivable and unearned revenues under lease agreements, the amount of lease revenues reported each period, the payments to be received for each of the five succeeding years
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All of the following are advantages, to the lessee, of leasing except
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Elimination of the risk of obsolescence
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The total charges to operations over the lease term are
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The same for a capital lease as an operating lease
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The distinction, for the lessor, between a direct financing lease and a sales-type lease is the presence or absence of
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Manufacturer's or dealer's profit
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In computing lease payments, the amounts to be recovered by the lessor is the
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Fair market value of the leased asset less the present value of the asset's residual value
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If the residual value of a leased asset is guaranteed by a third party
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It is treated by the lessee as no residual value
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The lessor expenses initial direct costs in the year of incurrence in a(n):
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Sales-type lease
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The Lease Liability account should be disclosed as
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Current portions in current liabilities and the remainder in noncurrent liabilities.
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ACC 232: EXAM 2