Ch.15 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. The accounting for a lease depends on the substance of the contract, regardless of the contract's form.    (2 points)

      
      

  2. When rental payments vary over the life of an operating lease, the lessee ordinarily expenses the total scheduled payments on a straight-line basis over the lease term.    (2 points)

      
      

  3. Leasing sometimes is used to obtain "off-balance-sheet financing."    (2 points)

      
      

  4. Operational, tax, and financial market considerations often make leasing an attractive alternative to purchasing.    (2 points)

      
      

  5. A primary characteristic of a capital lease is that it transfers material benefits and risks typically associated with ownership to the lessee.    (2 points)

      
      

  6. In accounting for operating leases, the lessor, rather than the lessee, will recognize depreciation on the leased asset.    (2 points)

      
      

  7. Unless there is an advance payment, a journal entry is not required for either the lessee or the lessor when an operating lease is negotiated and signed.    (2 points)

      
      

  8. The beginning of the lease term is the date on which the leased property is actually transferred to the lessee.    (2 points)

      
      

  9. Capital leases are agreements that are formulated outwardly as leases, but in reality are installment purchases.    (2 points)

      
      

  10. On a sale-leaseback transaction, any gain on the "sale" portion of the transaction is recognized immediately.    (2 points)

      
      

  11. If legal title passes to the lessee during, or at the end of, the lease term, the lease should be accounted for as a capital lease.    (2 points)

      
      

  12. A lease must include a noncancelable lease term to be accounted for as a capital lease.    (2 points)

      
      

  13. A bargain purchase option is defined as the option of purchasing leased property at a price that is equal to the expected fair value of a leased asset.    (2 points)

      
      

  14. If an asset is leased for most of its useful life, then most of the benefits and responsibilities of ownership are transferred to the lessee. We presume, arbitrarily, that 70% or more of the expected economic life of an asset is an appropriate threshold for this purpose.    (2 points)

      
      

  15. The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.    (2 points)

      
      

  16. When the lessee guarantees an estimated residual value of $75,000, the amount the lessee records as a leased asset and leased liquidity is increased by $75,000.    (2 points)

      
      

  17. 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.    (2 points)

      
      

  18. In lease negotiations, the parties involved often desire to devise terms that will result in a sale by the lessor but an operating lease to the lessee.    (2 points)

      
      

  19. When accounting for a nonoperating lease, the lessee records the leased asset at the present value of the minimum lease payments or the asset's fair value, whichever is lower.    (2 points)

      
      

  20. The lessee should depreciate assets obtained under a capital lease over the lease term regardless of the contractual arrangements included in the lease.    (2 points)

      
      

  21. GAAP requires that some lease agreements be accounted for as purchases. The theoretical justification for this treatment is that a lease of this type:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. From the perspective of the lessor, leases may be classified as either:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. The four criteria provided in FASB Statement No. 13 for distinguishing a capital lease from an operating lease do not include:   (2 points)

    a.  
    b.  
    c.  
    d.  

  24. Of the four criteria for a capital lease, the one that most often is the decisive criteria is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  25. Of the four criteria for a capital lease, which two are not applied if the lease begins during the final quarter of the asset's useful life?    (2 points)

    a.  
    b.  
    c.  
    d.  

  26. One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?    (2 points)

    a.  
    b.  
    c.  
    d.  

  28. What are the three types of expenses that a lessee experiences with a capital lease?    (2 points)

    a.  
    b.  
    c.  
    d.  

  29. When the total expenses over the life of an operating lease are compared to the total expenses over the life of a capital lease, one will find that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. 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:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. For the lessee to account for a lease as a capital lease, the lease must meet:   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. For the lessor to account for a lease as a capital lease, the lease must meet:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. The lessee normally measures the lease liability to be recorded as the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. Prepayments made on an operating lease are considered to be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  35. For a capital lease, an amount equal to the present value of the minimum lease payments should be recorded by the lessee as a(n):   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. Leasehold improvements usually are classified on a balance sheet as:   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. Unearned interest revenue related to a direct financing lease is classified on the lessor's balance sheet as:   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. For a leased asset under a lease that qualifies as a capital lease, the depreciation period used by the lessee must be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. If the lessee expects to obtain title to leased property due to a bargain purchase option or passage of title at the end of the lease term:   (2 points)

    a.  
    b.  
    c.  
    d.  

  40. If the lessor retains title to leased property under the terms of the lease:   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. Which of the following statements regarding guaranteed residual values is true for the lessee?    (2 points)

    a.  
    b.  
    c.  
    d.  

  42. On January 1, 2000, Getaway Corporation entered into a 4-year operating lease. The payments were as follows:$20,000 for 2000, $18,000 for 2001, $16,000 for 2002, and $14,000 for 2003. What is the correct amount of lease expense for 2001?    (2 points)

    a.  
    b.  
    c.  
    d.  

  43. On January 1, 2000, Packard Corporation leased equipment to Hewlit Company. The lease is for 8 years. The first payment of $450,000 was made on January 1, 2000. Remaining payments are made on December 31 each year, beginning with December 31, 2000. The equipment cost Packard Corporation $2,400,000. The present value of the minimum lease payments is $2,640,000. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balance reported as a liability by Hewlit on the December 31, 2001 balance sheet?    (2 points)

    a.  
    b.  
    c.  
    d.  

  44. On December 31, 2000, Focus Corporation leased equipment to Kansas Company for a 5-year period. The annual lease payment, excluding executory costs is $80,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2000. The normal cash price for this type of equipment is $250,000 while the cost to Focus was $210,000. For the year ended December 31, 2000, by what amount will Focus's pretax earnings increase from this lease?    (2 points)

    a.  
    b.  
    c.  
    d.  

  45. On February 1, 2000, Techno Corporation became the lessee of equipment under a five-year, noncancelable lease. The estimated economic life of the equipment is 8 years. The fair market value of the equipment was $120,000. The lease does not meet the definition of a capital lease in terms of a bargain purchase option, transfer of title, or the lease term. However, Techno must classify this as a capital lease if the present value of the minimum lease payments is at least    (2 points)

    a.  
    b.  
    c.  
    d.  

  46. What is the total interest over the term of the lease?    (2 points)

    a.  
    b.  
    c.  
    d.  

  47. What is the outstanding balance after payment nine?    (2 points)

    a.  
    b.  
    c.  
    d.  

  48. What would the lessee record as annual depreciation on the asset using the straight-line method, assuming no residual value?    (2 points)

    a.  
    b.  
    c.  
    d.  

  49. What would be the outstanding balance after payment ten?    (2 points)

    a.  
    b.  
    c.  
    d.  

  50. What is the ending balance after payment five?    (2 points)

    a.  
    b.  
    c.  
    d.  



Portions copyright ©2005 The McGraw-Hill Companies.
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.