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ACC 232: CHAPTER 21

Which of the following best describes current practice in accounting for leases?
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
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 economic life of the leased property. How should the lessee classify these leases?
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
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:
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:
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):
Sales-type lease
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Lease payments receivable includes all of the following except:
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:
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:
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?
Sales price of the asset
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The lessor expenses initial direct costs in the year of incurrence in a(n):
Sales-type lease
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The following are disclosures required of the lessor:
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 succeeding years
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All of the following statements about lease accounting under IFRS and U.S. GAAP are true except:
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.
False
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T or F: Minimum lease payments include both a guaranteed and an unguaranteed residual value.
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.
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.
False
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T or F: A lease that is cancelable cannot be recorded as a capital lease.
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.
False
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T or F: Executory costs represent payment on or reduction of the lease obligation.
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.
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.
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.
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.
False
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What is not a criterion for a lease to be recorded as a capital lease?
The lease term is substantially all of the asset's useful life.
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What is included in the minimum lease payment?
Bargain purchase option
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Which is not an advantage of leasing?
Interest rates for leasing always lower
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The lessee may not capitalize property for more than its:
Fair value
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What is not a benefit to the lessor>
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?
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:
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):
Operating lease
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When a depreciable asset is leased under an operating lease, the lessor:
Records depreciation in the normal manner
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Which of the following best describes current practice in accounting for leases?
Leases similar to installment purchases are capitalized.
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In computing the present value of the minimum lease payments, the lessee should?
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
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):
Operating lease
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Which of the following would not be included in the Lease Receivable account?
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?
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
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
Elimination of the risk of obsolescence
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The total charges to operations over the lease term are
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
Manufacturer's or dealer's profit
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In computing lease payments, the amounts to be recovered by the lessor is the
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
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):
Sales-type lease
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The Lease Liability account should be disclosed as
Current portions in current liabilities and the remainder in noncurrent liabilities.
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