Question 1

Each of the independent situations below describes a nonoperating lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit interest rate.
For convenience, here are some table values:
Required:
For each situation determine the amount of the annual lease payment, as calculated by the lessor.

Accepted Answer

Situation 1:
$600,000 / 6.7590...

Question 2

On January 1, 2009, Salvatore Company leased several machines from Nola Corporation under a 3-year operating lease agreement. The lease calls for semiannual payments of $15,000 each, payable on June 30 and December 31 of each year. The machines were acquired by Nola at a cost of $90,000 and are expected to have a useful life of 5 years with no expected residual value.
Required:
Prepare the appropriate journal entries for the lessor from the inception of the lease through the end of 2009.

Accepted Answer

The answer of On January 1, 2009, Salvatore Company leased...

Question 3

Lone Star Company would account for this as:

Accepted Answer

A)  A capital lease.
B)  A direct financing lease.
C)  A sales type lease.
D)  An operating lease.E) B) and C)
F) A) and B) A

Question 4

What is the interest revenue that Technoid would report on this lease in its 2009 income statement?

Accepted Answer

A)  $0
B)  $1,673,820
C)  $876,882
D)  None of these is correct.This is $876,662 interest for the first 6 mo.: ($20,000,000 lease payment of $2,466,754)  5%, plus $797,158 for the second 6 mo.: ($20,000,000 lease payment of $2,466,754 [$2,466,754 876,662])  5%E) A) and B)
F) B) and C)

Question 5

For the lessor to account for a lease as a capital lease, the lease must meet:

Accepted Answer

A)  Any one of first four classification criteria and both of the last two additional conditions specified by SFAS No.13.
B)  Any one of the six criteria specified by SFAS No.13.
C)  All four of the criteria specified by SFAS No.13.
D)  Any one of the four criteria specified by SFAS No.13.E) All of the above
F) A) and D)

Question 6

Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs. Initial direct costs are expensed at the inception of the lease in

Accepted Answer

A)  an operating lease.
B)  a capital lease.
C)  a direct financing lease
D)  a sales-type leaseE) B) and D)
F) C) and D)

Question 7

What is meant by the term "minimum lease payments"?

Accepted Answer

Minimum lease payments include the perio...

Question 8

If the lessor retains title to leased property under the terms of the lease:

Accepted Answer

A)  The amount to be recovered through periodic lease payments is reduced by the present value of the residual amount.
B)  The amount to be recovered through periodic lease payments is increased by the present value of the residual amount.
C)  The amount to be recovered will be the same as if there were no residual value.
D)  The lessor will record a greater amount of depreciation due to the residual value.E) B) and D)
F) None of the above

Question 9

In accounting for operating leases, the lessor, rather than the lessee, will recognize depreciation on the leased asset.

Accepted Answer

A) True 
 B)False

Question 10

Discuss the three major types of leases that may apply to the lessor. How do they differ?

Accepted Answer

From the lessor's point of view a lease ...

Question 11

On January 1, 2009, Salvatore Company leased several machines from Nola Corporation under a 3-year operating lease agreement. The lease calls for semiannual payments of $15,000 each, payable on June 30 and December 31 of each year. The machines were acquired by Nola at a cost of $90,000 and are expected to have a useful life of 5 years with no expected residual value.
Required:
Prepare the appropriate journal entries for the lessee from the inception of the lease through the end of 2009.

Accepted Answer

The answer of On January 1, 2009, Salvatore Company leased...

Question 12

A guaranteed residual value at the inception of a capital lease should be

Accepted Answer

A)  excluded from minimum lease payments.
B)  included as part of minimum lease payments at present value.
C)  included as part of minimum lease payments at future value.
D)  included as part of minimum lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.The guaranteed residual value is a promise made by the lessee that the lessor can sell the leased asset at the end of the lease for a guaranteed amount.Since this promise is a potential future payment, it must be included in the calculation of the present value of the lessee's future lease payments.E) A) and D)
F) C) and D)

Question 13

For the lessee to account for a lease as a capital lease, the lease must meet:

Accepted Answer

A)  All four of the criteria specified by SFAS No.13.
B)  Any one of the six criteria specified by SFAS No.13.
C)  Any two of the criteria specified by SFAS No.13.
D)  Any one of the four criteria specified by SFAS No.13.E) A) and D)
F) None of the above

Question 14

In addition to the criteria that must be met by the lessee, the lessor must meet additional conditions for classification as a nonoperating lease to satisfy the realization principle.

Accepted Answer

A) True 
 B)False  True

Question 15

If the lessor records unearned rent at the beginning of a lease term, the lease must:

Accepted Answer

A)  Be a direct financing lease.
B)  Be a sales-type lease.
C)  Contain a bargain renewal option.
D)  Be an operating lease.E) A) and B)
F) B) and C)

Question 16

If the lessee is expected to take ownership of a leased asset at the end of the lease term, the lessor must use an estimated residual value when calculating the lease payments necessary to achieve a desired rate of return.

Accepted Answer

A) True 
 B)False  False

Question 17

Since the lease payments under a lease agreement are normally paid at the beginning of each period, the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

Accepted Answer

A)  Ordinary annuity table.
B)  Present value of $1 table.
C)  Present value of an annuity due table.
D)  Future value of an annuity due table.E) B) and C)
F) A) and D)

Question 18

In a sale-leaseback arrangement, the lessee is also:

Accepted Answer

A)  The new owner of the property.
B)  The buyer.
C)  A third party guarantor.
D)  The seller.E) None of the above
F) B) and C)

Question 19

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?

Accepted Answer

A)  The present value of the minimum lease payments, exclusive of executory costs.
B)  The present value of the minimum lease payments plus executory costs.
C)  The sum of the gross minimum lease payments.
D)  The present value of the minimum lease payments plus the present value of executory costs.E) B) and D)
F) B) and C)

Question 20

From the perspective of the lessor, leases may be classified as either:

Accepted Answer

A)  Direct financing or sales-type.
B)  Operating, capital, or direct financing.
C)  Operating, sales-type, indirect financing.
D)  Operating, direct financing, or sales-type.E) A) and B)
F) A) and D)

Exam 15: Leases

Correct Answer
verified
Situation 1:
$600,000 / 6.7590...
View Answer

Correct Answer
verified

Lone Star Company would account for this as:

Correct Answer
verified
A

What is the interest revenue that Technoid would report on this lease in its 2009 income statement?

Correct Answer
verified

For the lessor to account for a lease as a capital lease, the lease must meet:

Correct Answer
verified

Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs. Initial direct costs are expensed at the inception of the lease in

Correct Answer
verified

What is meant by the term "minimum lease payments"?

Correct Answer
verified
Minimum lease payments include the perio...
View Answer

If the lessor retains title to leased property under the terms of the lease:

Correct Answer
verified

In accounting for operating leases, the lessor, rather than the lessee, will recognize depreciation on the leased asset.

Correct Answer
verified

Discuss the three major types of leases that may apply to the lessor. How do they differ?

Correct Answer
verified
From the lessor's point of view a lease ...
View Answer

Correct Answer
verified

A guaranteed residual value at the inception of a capital lease should be

Correct Answer
verified

For the lessee to account for a lease as a capital lease, the lease must meet:

Correct Answer
verified

In addition to the criteria that must be met by the lessee, the lessor must meet additional conditions for classification as a nonoperating lease to satisfy the realization principle.

Correct Answer
verified
True

If the lessor records unearned rent at the beginning of a lease term, the lease must:

Correct Answer
verified

If the lessee is expected to take ownership of a leased asset at the end of the lease term, the lessor must use an estimated residual value when calculating the lease payments necessary to achieve a desired rate of return.

Correct Answer
verified
False

Since the lease payments under a lease agreement are normally paid at the beginning of each period, the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

Correct Answer
verified

In a sale-leaseback arrangement, the lessee is also:

Correct Answer
verified

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?

Correct Answer
verified

From the perspective of the lessor, leases may be classified as either:

Correct Answer
verified

Exam 15: Leases

Correct AnswerverifiedSituation 1:$600,000 / 6.7590...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Lone Star Company would account for this as:

Correct AnswerverifiedA

What is the interest revenue that Technoid would report on this lease in its 2009 income statement?

Correct AnswerverifiedShow Answer

For the lessor to account for a lease as a capital lease, the lease must meet:

Correct AnswerverifiedShow Answer

Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs. Initial direct costs are expensed at the inception of the lease in

Correct AnswerverifiedShow Answer

What is meant by the term "minimum lease payments"?

Correct AnswerverifiedMinimum lease payments include the perio...View AnswerShow Answer

If the lessor retains title to leased property under the terms of the lease:

Correct AnswerverifiedShow Answer

In accounting for operating leases, the lessor, rather than the lessee, will recognize depreciation on the leased asset.

Correct AnswerverifiedShow Answer

Discuss the three major types of leases that may apply to the lessor. How do they differ?

Correct AnswerverifiedFrom the lessor's point of view a lease ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A guaranteed residual value at the inception of a capital lease should be

Correct AnswerverifiedShow Answer

For the lessee to account for a lease as a capital lease, the lease must meet:

Correct AnswerverifiedShow Answer

In addition to the criteria that must be met by the lessee, the lessor must meet additional conditions for classification as a nonoperating lease to satisfy the realization principle.

Correct AnswerverifiedTrue

If the lessor records unearned rent at the beginning of a lease term, the lease must:

Correct AnswerverifiedShow Answer

If the lessee is expected to take ownership of a leased asset at the end of the lease term, the lessor must use an estimated residual value when calculating the lease payments necessary to achieve a desired rate of return.

Correct AnswerverifiedFalse

Since the lease payments under a lease agreement are normally paid at the beginning of each period, the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

Correct AnswerverifiedShow Answer

In a sale-leaseback arrangement, the lessee is also:

Correct AnswerverifiedShow Answer

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?

Correct AnswerverifiedShow Answer

From the perspective of the lessor, leases may be classified as either:

Correct AnswerverifiedShow Answer

Correct Answer
verified
Situation 1:
$600,000 / 6.7590...
View Answer

Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Minimum lease payments include the perio...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
From the lessor's point of view a lease ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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True

Correct Answer
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False

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Correct Answer
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Correct Answer
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