Accounting 15

Created by chcummin 

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Which of the following is not an advantage to the lessee of leasing over purchasing?
A-The lessee can avoid the risks of ownership.
B-There is flexibility, which is especially important in businesses where innovation and technological change make the future usefulness of particular equipment or facilities highly uncertain.
C-Typically, leases are structured so there is no down payment.
D-All are advantages to the lessee.

D- All are advantages to the lessee

Which of the following is not an advantage to the lessor of leasing property over selling it?
A-A lessor as a manufacturer or dealer may significantly increase its sales volume through leasing.
B-In many lease arrangements, title to the leased property never passes to the lessee, so the lessor retains residual value.
C-All are advantages to the lessor.
D-Leasing establishes ongoing business relationships be lessors and lessees.

C- All are advantages to the lessor

Generally accepted accounting principles require that certain lease agreements be accounted for as purchases. The theoretical basis for this treatment is that a lease of this type
A-effectively conveys all of the benefits and risks incident to the ownership of property.
B-provides the use of the leased asset to the lessee for a limited period of time.
C-must be recorded in accordance with the concept of cause and effect.
D-is an example of form over substance

A- effectively conveys all of the benefits and risks incident to the ownership of property

Why do most companies using assets under lease agreements go to great lengths to ensure that they can account for the bulk of their leases as operating leases? because it allows them to keep both the asset and the associated liability off the balance sheet?
A-Because it allows them to keep both the asset and the associated liability off the balance sheet.
B-Because they want to improve financial ratio measures of leverage
C-All of these are correct.
D-Because they want to improve financial ratio measures of efficiency

C-All of these are correct

Which of the following is true regarding the lease term?
A-The lease term does not include all periods covered by bargain renewal options.
B- The lease term includes all periods for which failure to renew imposes a penalty sufficiently high that the lessee probably will renew.
C-The lease term does not include all periods representing renewals or extensions of the lease at the lessor's option.
D-The lease term may extend beyond the date a bargain purchase option becomes exercisable.

B- The lease term includes all periods for which failure to renew imposes a penalty sufficiently high that the lessee probably will renew.

From the standpoint of the lessee, the minimum lease payment includes all of the following except
A-the guaranteed residual value.
B-any payment that the lessee must make upon failure to extend or renew the lease.
C-the bargain purchase option.
D-the lessee's obligation to pay executory costs.

D- The lessee's obligation to pay executory costs

One of the four general criteria for a capital lease specifies that the lease term be equal to or greater than
A-50 percent of the estimated economic life of the property.
B-90 percent of the estimated economic life of the property.
C-75 percent of the estimated economic life of the property.
D-the estimated economic life of the property.

C-75% of the estimated economic life of the property

Lease Y does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease Z 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 percent of the estimated economic life of the leased property. How should the lessee classify these leases?

Lease Y-Capital Lease
Lease Z-Capital Lease

Which of the following terms is defined as the party using the leased asset?
A-Executor
B-Lessor
C-Lessee
D-None of these are correct.

C-Lessee

Which of the following terms is accounted for as a rental agreement?
A-None of these are correct
B-Sale-leaseback
C-Operating lease
D-Capital lease

C-Operating Lease

Which of the following statements characterizes an operating lease?
A-The lessor transfers title of the leased property to the lessee for the duration of the lease term.
B-The lessee records depreciation and interest.
C-The lessor records depreciation and lease revenue.
D-The lessee records the lease obligation related to the leased asset.

C- The lessor records depreciation and lease revenue

What do the proper accounting treatments for leases hinge on?
A-All of these are correct.
B-Effective ownership, as opposed to legal ownership
C-Whether or not a sale should be recognized on the date the lease is signed.
D-Whether the lessee should recognize a leased asset and the lease payment obligation on the balance sheet when the transaction takes place

A-All of these are correct

Which of the following would be considered an executory cost?
A-Interest expense incurred
B-Minimum lease payments
C-Maintenance cost
D-Bargain purchase option

C-Maintenance Cost

If the residual value of a leased asset is greater than the amount guaranteed by the lessee, the lessee
A-recognizes a gain at the end of the lease term.
B-pays the lessor for the difference.
C-pays the lessor for the difference.
D-has no obligation related to the residual value.

D-Has no obligation related to the residual value

If the lessee and the lessor use different interest rates to account for a capital lease, then
A-GAAP has been violated since the lessor and the lessee are not allowed to use different interest rates in accounting for capital leases.
B-the lease will never be accounted for as a capital lease by the lessee.
C-total expenses (or revenues) will be equal for both lessee and lessor.
D-total expenses (or revenues) will be different for the lessee and the lessor.

D- Total expenses (Revenues) will be different for the lessee and the lessor.

Damien Corp. leased a new building and land from Barker Leasing Inc. for 25 years. At the inception of the lease the building and land have fair market values of $200,000 and $25,000, respectively. The building has an expected economic life of 30 years. Which of the following statements is correct regarding Damien's treatment of the lease?

A-Damien should treat the lease as a capital lease even though there is no bargain purchase option and no automatic transfer of ownership at the termination of the lease.
B-Damien should treat the lease as a capital lease only if Barker treats the transaction as a leveraged lease.
C-Damien should treat the lease as a capital lease only if there is either a bargain purchase option or an automatic transfer of ownership at the termination of the lease.
D-Damien should treat the lease as a capital lease provided that the land and building are recorded in separate asset accounts and accounted for separately.

A- Damien should treat the lease as a capital lease even though there is no bargain purchase option and no automatic transfer of ownership at the termination of the lease.

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