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Which of the following best describes current practice in accounting for leases?
a. leases are not capitalized
b. leases similar to __________ purchases are capitalized
c. all long-term leases are capitalized
d. all leases are capitalized

installment

What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?
a. no impact as the option does not enter into the transaction until the end of the lease term
b. the lessee must _________ the present value of the minimum lease payments by the present value of the option price
c. the lessee must decrease the present value of the minimum lease payments by the present value of the option price
d. the minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price

increase

The amount to be recorded as the cost of the asset under capital lease is equal to the
a. present value of the minimum lease payments
b. present value of the minimum lease payments or the ______ value of the asset, whichever is lower
c. present value of the minimum lease payments plus the present value of any unguaranteed residual value
d. carrying value of the asset on the lessor's books

fair

The methods of accounting for a lease by the lessee are
a. operating and _______ lease methods
b. operating, sales and capital lease method
c. operating and leverage lease methods
d. none of these

capital

Minimum lease payments may include a
a. penalty for failure to renew
b. bargain purchase option
c. guaranteed residual value
d. _____of these

any

Executory costs include
a. maintenance
b. property taxes
c. insurance
d. _____ of these

all

In computing the present value of the minimum lease payments, the lessee should
a. use its incremental borrowing rate in all cases
b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee
c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is _______, assuming that the implicit rate is known to the lessee
d. none of these

lower

In computing depreciation of a leased asset, the lessee should subtract
a. a __________ residual value and depreciate over the term of the ______
b. an unguaranteed residual value and depreciate over the term of the lease
c. a guaranteed residual value and depreciate over the life of the asset
d. an unguaranteed residual value and depreciate over the life of the asset

guaranteed lease

In the earlier years of a lease, from the lessee's perspective, the use of the
a. capital method will enable the lessee to report higher income, compared to the operating method
b. _______ method will cause debt to _______, compared to the operating method
c. operating method will cause income to decrease, compared to the capital method
d. operating method will cause debt to increase, compared to the capital method

capital increase

A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the
a. ________ remaining economic life
b. term of the lease
c. life of the asset or the term of the lease, whichever is shorter
d. life of the asset or the term of the lease, whichever is longer

asset's

Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor?
I transfers ownership by end of lease
II contains bargain purchase option
III collectiblility of Lease payments assured
IV Any important uncertainties
a. I & IV ____, II & III ____
b. I yes, II III & IV no
c. I & IV yes, II & III no
d. I no, II III & IV yes

no yes

In a lease that is appropriately recorded as a direct financing lease by the lessor, unearned income
a. should be amortized over the period of the lease using the _______ method
b. should be amortized over the period of the lease using the straight line method
c. does not arise
d. should be recognized at the lease's expiration

interest

In order to properly record a direct financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct financing lease is best defined as
a. the amount of funds the lessor has tied up in the asset which is the subject of the direct financing lease
b. the difference between the lease payments receivable and the fair market value of the leased property
c. the _______ value of minimum lease payments
d. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement

present

If the residual value of a lease asset is guaranteed by a third party
a. it is treated by the lessee as no residual value
b. the 3rd party is also liable for any lease payments not paid by the lessee
c. the net investment to be recovered by the lessor is reduced
d. it is treated by the lessee as an ________ payment and by the lessor as realized at the end of the lease term

additional

The primary difference between a direct financing lease and a sales-type lease is the
a. manner in which rental receipts are recorded as rental income
b. amount of the depreciation recorded each year by the lessor
c. __________ of the manufacturer's or dealer's profit at the inception of the lease
d. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements

recognition

A lessor with a sales type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?
a. the minimum lease payments plus the unguaranteed residual value
b. the ________ value of the minimum lease payments
c. the cost of the asset to the lessor, less the present value of any unguaranteed residual value
d. the present value of the minimum lease payments plus the present value of the unguaranteed residual value

present

The lease liability account should be disclosed as
a. all current liabilities
b. all noncurrent liabilities
c. current ________ in current liabilities and the remainder in noncurrent liabilities
d. deferred credits

portions

When a company sells property and then leases it back, any gain on the sale should usually be
a. recognized in the current year
b. recognized as a prior period adjustment
c. recognized at the end of the lease
d. ________ and recognized as income over the term of the lease

deferred

Major reasons why a company may become involved in leasing to other companies is (are)
a. interest revenue
b. high residual values
c. tax incentives
d. ______ of these

all

A change that occurs as the result of new information or as additional experience is acquired is a
a. change in accounting principle
b. change in accounting ________
c. change in reporting entity
d. correction of an error

estimate

All of the following are examples of a change in accounting principle except a change from
a. average cost to LIFO inventory pricing
b. FIFO to average cost
c. the completed contract to percentage of completion method of accounting for construction contracts
d. ________ certain expenditures that were immaterial to deferring and amortizing them because they have become material

expensing

A switch from the cash basis of accounting to the accrual basis is considered a
a. change in accounting principle
b. change in accounting estimate
c. change in reporting entity
d. correction of an ______

error

Changes in accounting principle are generally accounting for
a. __________
b. prospectively
c. currently
d. consistently

retrospectively

The cumulative effect of a change in accounting principle is reported
a. on the income statement as an extraordinary item
b. on the income statement as part of discountinued operations
c. on the retained earnings statement as an adjustment to the beginning balance of the current year
d. on the retained earnings statement as an adjustment to the beginning balance on the _________ year presented

earliest

All of the following situations require the restatement of prior period financial statements except a change
a. in the method of accounting for long-term construction contracts
b. to the _______ inventory method from another method
c. to or from the full cost method of accounting in the extractive industries
d. all of the options require restatement

LIFO

Corrections of errors from prior periods are reported
a. as an extraordinary item
b. between extraordinary items and net income on the income statement
c. as an adjustment to the ________ year's beginning retained earnings
d. as an adjustment of beginning retained earnings of the earliest year presented

current

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