QUIZZ CHAPTER 21

1.All of the following are advantages of leasing except: off-balance sheet financing. elimination of the risk of obsolescence. less costly financing. 100% financing at fixed rates.

2.The IASB agrees with which of the following viewpoints regarding capitalization of leases? Capitalize firm leases where the penalty for nonperformance is substantial. Do not capitalize any leased assets. Capitalize those leases similar to installment purchases. Capitalize all long-term leases.

3.The lessee would classify a lease as a finance lease if the: lease transfers ownership of the asset to the lessor. minimum lease payments equal or exceed substantially all of the fair value of the leased asset. lease contains a purchase option. lease term is for a major part of the economic life of the leased asset.

4.Minimum lease payments include all of the following except: the minimum rental payments. a guaranteed residual value. a bargain purchase option. executory costs.

5.The lessee records a finance lease as an asset and a liability at the:

present value of the minimum lease payments. total amount of the minimum lease payments. fair market value of the leased asset at the lease inception. lower of the present value of the minimum lease payments or the fair market value of the leased asset.

6.All of the following are differences that occur if a lease is classified as a finance lease instead of an operating lease except: an increase in the amount of total assets. a lower income early in the life of the lease. an increase in the amount of reported debt. a decrease in the amount of total expenses.

7.A lease that involves a manufacturer's or dealer's profit is a (an): sales-type lease. direct financing lease. finance lease. operating lease.

8.Unearned interest revenue is: the difference between the fair market value of the property and the cost of the property. amortized to revenue over the lease term by using the effective interest method. the difference between the net investment and the fair value of the property. recorded in both capital and operating leases.

9.Lease payments receivable includes all of the following except:

unguaranteed residual value. All of the options are included. a bargain purchase option. a penalty for failure to renew.

10.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. cost of the leased asset less the asset's residual value. cost of the leased asset less the present value of the asset's residual value. fair market value of the leased asset less the asset's residual value.

11.The computation of the lessee's capitalized amount is the sum of the: annual rental payments and the guaranteed residual value. present value of the annual rental payments and the undiscounted guaranteed residual value. present value of the annual rental payments and the present value of the guaranteed residual value. annual rental payments and the present value of the guaranteed residual value.

12.
The lessor includes the leased asset's residual value in the amount to be recovered through lease payments if the residual value is: less than the purchase option. guaranteed. unguaranteed. guaranteed or unguaranteed.

13.Which one of the following amounts would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value? Lease receivable. Gross profit. Sales price of the asset. None of the above.

14.The lessor expenses initial direct costs in the year of incurrence in a(n): operating lease. sales-type lease. direct financing lease and sales-type lease. direct financing lease.

15.All of the following are disclosures required of the lessor except: future minimum lease payments to be received for each of the five succeeding years. the components of the net investment in sales-type and direct financing leases as of each balance sheet date. All of the options are required disclosures. total contingent rentals included in income for each period for which an income statement is presented.

16.All of the following statements about lease accounting under IFRS and U.S. GAAP are true except: the IFRS leasing standard is IAS 17, first issued in 1982. the IFRS leasing standard, IAS 17, is the subject of only three interpretations. IFRS requires a year-by-year breakout of payments related to leasing arrangements. IFRS is more general in its lease accounting provisions than is U.S. GAAP.

ADDITIONAL SELF TEST

1.A lease that transfers the benefits and risks of ownership should be capitalized. False True

2.Minimum lease payments do not include the guaranteed residual value. True False

3.Financial statement or note disclosure is required for all operating leases that have a noncancelable term in excess of one year. True False

4.If a lease contains a dealer's profit, it is classified as a direct financing lease for the lessor. True False

5.A lease that is cancelable cannot be recorded as a finance lease. False True

6.A lease where the present value of the minimum lease payments exceeds substantially all of the fair value of the asset must be capitalized. False True

7.Executory costs represent payment on or reduction of the lease obligation.

True False

8.The present value of the unguaranteed residual value is included in the calculation of the minimum lease payments for the lessee. True False

9.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 True

10.Under the operating lease method, the lessee will depreciate the asset over the lease term if less than the economic life of the asset. True False

11.International Standard No. 17 (Accounting for Leases) is more detailed and prescriptive than the corresponding U.S. GAAP on leases. True False

12.Which of the following are not includable in executory costs? Insurance. Maintenance. Taxes. Minimum rental payments.

13.Which of the following is not a criterion for a lease to be recorded as a finance lease? The lease term is for a major part of the asset's useful life. There is transfer of ownership. There is a bargain purchase option. The lease is cancelable.

14.Which of the following is included in the minimum lease payment? Insurance. Bargain purchase option. Maintenance costs. Property taxes.

15.All of the following are advantages of leasing except: leasing may have favorable tax advantages. leasing permits the write-off of the full cost of the assets leasing may permit more rapid changes in equipment. interest rates for leasing always lower.

16.The lessee may not capitalize property for more than its: book value. historical cost. fair value. liquidation value. 17.Which of the following is not a benefit to the lessor? Interest revenue. Tax incentives.

Off-balance sheet financing. High residual value.

18.Which of the following is not one of the classifications for leases from the lessor's viewpoint? Off-balance sheet. Sales-type. Operating. Direct financing.

19.The distinction for the lessor between a direct financing lease or a sales-type lease is the presence or absence of: guaranteed residual value. executory costs. minimum lease payments. manufacturer or dealer's profit.

20.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. capital lease. residual lease. temporary lease.

21.When a depreciable asset is leased under an operating lease, the lessor: defers depreciation until the lease expires. records depreciation in the normal manner. must use activity-based depreciation.

never recognizes depreciation.