ACC/305 ACC305 ACC 305 WEEK 7 QUIZ

ACC 305 WEEK 7 QUIZ

Multiple Choice Question 43

The primary difference between a direct-financing lease and a sales-type lease is the

allocation of initial direct costs by the lessor to periods benefited by the lease arrangements.

 

manner in which rental receipts are recorded as rental income.

 

recognition of the manufacturer’s or dealer’s profit at (or loss) the inception of the lease.

 

amount of the depreciation recorded each year by the lessor.

 

Multiple Choice Question 41

When lessors account for residual values related to leased assets, they

all of the answers are true with regard to lessors and residual values.

 

include the residual value because they always assume the residual value will be realized.

 

include the unguaranteed residual value in sales revenue.

 

recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value.

 

Multiple Choice Question 30 Minimum lease payments may include a   guaranteed residual value.     penalty for failure to renew.     bargain purchase option.     any of these.

 

Multiple Choice Question 71

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Pisa, Inc. uses the straight-line method to depreciate similar assets. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?

$0 because the asset is depreciated by Tower Company.

 

$142,484

 

$153,883

 

$150,000

 

Multiple Choice Question 88

Geary Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Geary gets to recognize all the profits. At the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:

If, at the end of the lease, the fair value of the residual value is $9,800, what gain or loss should Geary record?

$9,800 gain

 

$4,680 gain

 

$6,200 loss

 

$8,280 loss

Multiple Choice Question 52

On December 1, 2015, Goetz Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Goetz paid the landlord the following amounts:

The entire amount of $990,000 was charged to rent expense in 2015. What amount should Goetz have charged to expense for the year ended December 31, 2015?

$96,000

 

$720,000

 

$90,000

 

$186,000

 

Multiple Choice Question 62

On January 1, 2014, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder appropriately accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $625,479 at an effective interest rate of 10%.

In 2014, Sauder should record interest expense of

Multiple Choice Question 100

Lease A 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 B 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?

 

Multiple Choice Question 53

On January 1, 2015, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $150,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2015

lease expense of $150,000.

 

interest expense of $68,522 and depreciation expense of $100,652.

 

interest expense of $67,101 and depreciation expense of $57,102.

 

interest expense of $80,521 and depreciation expense of $67,101.

 

Multiple Choice Question 23

Which of the following best describes current practice in accounting for leases?

Leases similar to installment purchases are capitalized.

 

All long-term leases are capitalized.

 

Leases are not capitalized.

 

All leases are capitalized.

 

Multiple Choice Question 42

The initial direct costs of leasing

all of the answers are true with regard to the initial direct costs of leasing.

 

are expensed in the period of the sale under a sales-type lease.

 

are generally borne by the lessee.

 

include incremental costs related to internal activities of leasing, and internal costs related to costs paid to external third parties for originating a lease arrangement.

 

Multiple Choice Question 32

In computing the present value of the minimum lease payments, the lessee should

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.

 

use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.

 

none of these answers are correct.

 

use its incremental borrowing rate in all cases.

 

Multiple Choice Question 46

Which of the following statements is correct?

For direct-financing leases, initial direct costs are added to the net investment in the lease.

 

For operating leases, initial direct costs are deferred and allocated over the lease term.

 

For sales-type leases, initial direct costs are expensed in the year of incurrence.

 

All of these answers are correct.

 

Multiple Choice Question 31

In computing depreciation of a leased asset, the lessee should subtract

a guaranteed residual value and depreciate over the term of the lease.

 

an unguaranteed residual value and depreciate over the term of the lease.

 

an unguaranteed residual value and depreciate over the life of the asset.

 

a guaranteed residual value and depreciate over the life of the asset.

 

Multiple Choice Question 51

When a company sells property and then leases it back, any gain on the sale should usually be

recognized at the end of the lease.

 

deferred and recognized as income over the term of the lease.

 

recognized in the current year.

 

recognized as a prior period adjustment.