Major reasons why a company may become involved in leasing to other companies is (are)
interest revenue, high residual values, and tax incentives
Which of the following is an advantage of leasing?
Off-balance-sheet financing, less costly financing, 100% financing at fixed rates
Which of the following best describes current practice in accounting for leases?
Leases similar to installment purchases are capitalized
While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that
a lease reflects the purchase or sale of a quantifiable right to the use of property
An essential element of a lease conveyance is that the
lessor conveys less than his or her total interest in the property.
What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?
The lessee must increase the present value of the minimum lease payments by the present value of the option price.
The amount to be recorded as the cost of an asset under capital lease is equal to the
present value of the minimum lease payments or the fair value of the asset, whichever is lower.
The methods of accounting for a lease by the lessee are
operating and capital lease methods.
Which of the following is a correct statement of one of the capitalization criteria?
The lease term is equal to or more than 75% of the estimated economic life of the leased property.
Minimum lease payments may include a
penalty for failure to renew, bargain purchase option, guaranteed residual value
When lessors account for residual values related to leased assets, they
always include the residual value because they always assume the residual value will be realized.
The initial direct costs of leasing
are expensed in the period of the sale under a sales-type lease.
The primary difference between a direct-financing lease and a sales-type lease is the
recognition of the manufacturer's or dealer's profit at the inception of the lease.
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?
The present value of the minimum lease payments.
For a sales-type lease,
the gross profit will be the same whether the residual value is guaranteed or unguaranteed.
Which of the following statements is correct?
In a direct-financing lease, initial direct costs are added to the net investment in the lease, In a sales-type lease, initial direct costs are expensed in the year of incurrence, and For operating leases, initial direct costs are deferred and allocated over the lease term.
The Lease Liability account should be disclosed as
current portions in current liabilities and the remainder in noncurrent liabilities.
To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?
Write in a bargain purchase option.
If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a capital lease, who records the asset on its books and which party records interest expense during the lease period?
Party recording the asset on its books: Seller-lessee. Party recording interest expense: Seller-lessee.
In a sale-leaseback transaction where none of the four leasing criteria are satisfied, which of the following is false?
The purchaser-lessor records a gain.
When a company sells property and then leases it back, any gain on the sale should usually be
deferred and recognized as income over the term of the lease.