FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 21: Accounting for Leases

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

Multiple Choice

Review LaterAdd Note

Review Later

On January 1, 2010, Scarlett signed a lease agreement with Amber.Amber will use the equipment and make ten annual payments of $15, 000 beginning December 31, 2010.The lease is considered to be a capital lease.When reading the Amber income statement, you would expect to find which of the following accounts?

A) Rent Revenue
B) Interest Revenue
C) Rental Expense
D) Interest Expense

E) None of the above
F) B) and C)

Correct Answer

verified

Show Answer

Question 62

Multiple Choice

Review LaterAdd Note

Review Later

Which statement is not true?

A) If a lease is a capital lease because of a bargain purchase option, the leased asset should be depreciated over the life of the asset, not the life of the lease.
B) The lessee ignores unguaranteed residual value in the measurement of the lease obligation.
C) If there is a bargain purchase option, the lessor does not consider an unguaranteed residual value in measuring the lease receivable at the date of lease signing.
D) In direct financing leases, the net investment in the lease should be adjusted each year by material changes (increases or decreases) in estimated unguaranteed residual values.

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

Correct Answer

verified

Show Answer

Question 63

Multiple Choice

Review LaterAdd Note

Which is an advantage of leasing from a lessee's viewpoint?

According to current GAAP, leased property could be reported as an asset on the balance sheet of the lessee and the lessor as follows: $\begin{array}{lll}&\text { Lessee}&\text { Lessor }\\ \text { I. } & \text { included } & \text { included } \\\text { II. } & \text { included } & \text { not included }\\\text { III. } & \text {not included } & \text { not included }\end{array}$

Exhibit 21-4 On January 1, 2010, General Leasing Company entered into a direct financing lease with a lessee, Lee Company.The lease agreement calls for five equal annual payments of $60, 000 at the beginning of each year with the first payment due on January 1, 2010.The leased property has an estimated residual value of $10, 000, which Lee does not guarantee.The property remains the property of General at the end of the lease term.General desires a 12% rate of return.Present value factors for a 12% interest rate are as follows: $\begin{array}{llr} \text { Present value of \$ 1 for \( n=1 \) } &0.892857\\ \text { Present value of \( \$ 1 \) for \( n=5 \) } &0.567427\\ \text { Present value of an ordinary annuity for \( n=5 \) } &3.604776\\ \text { Present value of an annuity due for \( n=5 \) } &4.037349\\\end{array}$ - Refer to Exhibit 21-4.What is the amount of interest revenue that General should recognize on the lease for the year ended December 31, 2010? (Round the answer to the nearest dollar.

If a lease is classified as a capital lease because the lease agreement contains a bargain purchase option, the time period to be used by the lessee to amortize the leased property is

For a lease that contains a bargain purchase option, minimum lease payments include

Exhibit 21-5 The Chicago, Inc.entered into a five-year lease with the Urbana Company on January 1, 2010.Chicago, the lessor, will require that five equal annual payments of $25, 000 be made at the beginning of each year.The first payment will be made on January 1, 2010.The lease contains a bargain purchase option price of $12, 000, which the lessee may exercise on December 31, 2014.The lessee pays all executory costs.The cost of the leased property and its normal selling price are $95, 000 and $118, 236, respectively.Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease.Present value factors for a 7% interest rate are as follows: $\begin{array}{llr} \text { Present value of \$ 1 for \( n=1 \) } &0.934579\\ \text { Present value of \( \$ 1 \) for \( n=5 \) } &0.712986\\ \text { Present value of an ordinary annuity for \( n=5 \) } &4.100197\\ \text { Present value of an annuity due for \( n=5 \) } &4.387211\\\end{array}$ - Refer to Exhibit 21-5.If Chicago requires a 7% annual return, what is the correct amount that should be credited to Unearned Interest: Leases on January 1, 2010, by Chicago? (Round the answer to the nearest dollar.)

Which of the following amortization policies is correct for a capital lease of both land and buildings that transfers title or contains a bargain purchase option?

One of the distinguishing characteristics of a direct financing lease is that

On January 1, 2010, Wally Company signed a four-year lease requiring annual payments of $45, 000, with the first payment due on January 1, 2010.Wally's incremental borrowing rate was 6%.Actuarial information for 6% follows: $\begin{array}{llr}&\text {3 Periods}&\text {4 Periods}&\text {5 Periods}\\ \text { Present value of an annuity due of 1 @ 6 \% } &2.83339&3.67301&4.46511\\ \text { Present value of ordinary annuity of 1 @ \( 6 \% \) } &2.67301&3.46511&4.21236\\\end{array}$ Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment under capital leases on January 1, 2010 (rounded to the nearest dollar) ?

Exhibit 21-2 On January 1, 2010, Maury Company leased equipment, signing a five-year lease that requires annual lease payments of $20, 000.The lease qualifies as a capital lease.The payments are made at year-end, and the first payment will be made at December 31, 2010.In addition, Maury guarantees the residual value to be $10, 000 at the end of the lease term.Maury correctly uses the lessor's implicit interest rate, which is 12%.The present value factors for five periods at 12% are as follows: $\begin{array}{llr} \text {Present value of \$ 1 } &0.567427\\ \text { Present value of ordinary annuity of \( \$ 1 \) } &3.604776\\\end{array}$ - Refer to Exhibit 21-2.What is the correct interest expense for the year ending December 31, 2011, for the lease obligation? (Round answers to the nearest dollar.)

When a lessee makes periodic cash payments for an operating lease, which of the following accounts is increased?

Which of the following is not a required disclosure by a lessor of a sales-type lease?