Exam 13: Leases

A) Accounting by lessors for leases is virtually unchanged from what was required by SFAS No. 13
B) Accounting by lessees for leases is virtually unchanged from what was required by SFAS No. 13
C) Accounting by lessors for leases re is significantly changed from what was required by SFAS No. 13
D) Accounting by lessees and lessors for leases is virtually unchanged from what was required by SFAS No. 13.

Correct Answer

verified

Show Answer

A) Zero
B) The absolute sum of the lease payments
C) The present value of the sum of the lease payments discounted at an appropriate rate
D) The book value of the asset on the lessor's books at the date of the inception of the lease

Correct Answer

verified

Show Answer

A) Use the implicit rate in all cases.
B) Use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee/
C) Use its incremental borrowing rate in all cases.
D) Use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee.

Correct Answer

verified

B

A) Included in the future rentals to be capitalized
B) Excluded from future rentals to be capitalized
C) Capitalized but at a different discount rate and recorded in a different account than future rental payments
D) Capitalized but at a different discount rate and for a relevant period that tends to be different than that for future rental payments

Correct Answer

verified

Show Answer

A) The fair value of the leased asset is $100,000 and the present value of the minimum lease payments is $95,000.
B) The lease provides for no unguaranteed salvage value.
C) The lessee has the option to purchase the leased asset in 4 years for $2 when the asset's salvage value is expected to be $20,000.
D) The asset's useful life is 20 years; a 4-year lease occurs when the asset is 26 years old.

Correct Answer

verified

Show Answer

A) Less than in the second year
B) More than in the second year
C) The same as in the fourth year
D) More than in the fourth year

Correct Answer

verified

Show Answer

A) The lease transfers ownership of the underlying asset to the lessee by the end of the lease term
B) The lease grants the lessee an option to purchase the underlying asset the lessee is reasonably certain to exercise
C) The lease term is for the major part of the remaining economic life of the underlying asset
D) The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds 50 percent of the fair value of the underlying asset.

Correct Answer

verified

Show Answer

Correct Answer

verified

From the lessee's perspective, a lessee ...

View Answer

Show Answer

A) Amortization expense and lease expense.
B) Interest expense.
C) Lease expense.
D) Amortization expense.

Correct Answer

verified

Show Answer

Correct Answer

verified

A lessee should allocate the contract pr...

View Answer

Show Answer

A) The recognition of a right‐to‐use asset (ROU) and lease liability on the statement of financial position for those leases previously classified as operating leases under SFAS No. 13
B) Leases will be measured at their fair value by lessees
C) The classification of a lease as a finance by a lessee is based on a completely new set of criteria than was used in SFAS No. 13.
D) There are no major differences between the two standards in accounting for leases by lessees.

Correct Answer

verified

Show Answer

Correct Answer

verified

Whether a lease is similar to a sale of a right of use asset depends on whether the lessee, in effect, obtains control of the leased asset. Since meeting any one of the five finance lease criteria implies that control of the leased asset passes from the lessor to the lessee, all leases that meet one or more of the finance lease criteria are classified as sales-type leases. In assessing the finance lease criteria, the lessor, unlike the lessee, the lessor shall always determine the present value the lease payments and any residual value guaranteed by the lessee using the rate implicit in the lease. If none of the five finance lease criteria is met, the lessor is to classify the lease as either a direct financing lease or an operating lease. A lease is classified as a direct financing lease when both of the following conditions are met. • The present value of the sum of lease payments and any residual value guaranteed by the lessee that is not already reflected in lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset. • It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. All other leases are classified as operating leases

Correct Answer

verified

A lessor will classify a lease as a sale...

View Answer

Show Answer

A) Operating and finance leases.
B) Operating, sales, and finance leases.
C) Operating and leveraged leases.
D) None of these answers are correct.

Correct Answer

verified

Show Answer

A) All leases must be recorded as finance leases by lessees under ASU 2016-02; whereas, some leases may be recorded as operating leases by lessees under IFRS No. 16.
B) All leases must be recorded as finance leases by lessees under IFRS No. 16; whereas, some leases may be recorded as operating leases by lessees under ASU 2016-02
C) All leases must be recorded as finance leases by lessors under ASU 2016-02; whereas, some leases may be recorded as operating leases by lessors under IFRS No. 16
D) All leases must be recorded as finance leases by lessors under IFRS No. 16; whereas, some leases may be recorded as operating leases by lessors under ASU 2016-02.

Correct Answer

verified

Show Answer

A) The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property
B) The lease transfers ownership of the property to the lessor
C) The lease contains a purchase option
D) The lease term is a major part of the asset's economic life, not near the end of the asset's life

Correct Answer

verified

Show Answer

Correct Answer

verified

Because title to the asset passes to the lessee, the lease term is for the major part of the remaining economic life of the underlying asset. That is, (3/3 = 100%), and the present value of the lease payments is more than 90% of the fair value of the asset ($95,000/$95,000 = 100%), it is a financing lease to the lessee. Assuming the collectibility of the rents is probable, the lease is accounted for as a sales-type lease by Lopez. Abbott should account for the lease as a finance lease and record the right-of-use asset and lease liability at the present value of the lease payments using the incremental borrowing rate if it is impracticable to determine the interest rate implicit in the lease. Because both the economic life of the asset and the lease term are three years, the leased asset should be depreciated over this period. Lopez should account for the lease as a sales-type lease. The lessor should record a lease receivable and sales revenue equal to the present value of the lease payments of $95,000. In addition, the lessor should remove the asset (inventory) from its books at $70,000, and the related cost of goods sold $70,000. Interest is recognized annually at a constant rate relative to the unrecovered lease receivable.

A) Yes    Yes
B) Yes     No
C) No    Yes
D) No    No

Correct Answer

verified

Show Answer