Chapter 15

Question 1

Finance leases

Answer 1

Lessee has, in substance, purchased the lease asset

Question 2

Sales-type lease

Answer 2

lessor transfers control of lease asset to lessee, with or without a selling profit on the sale of the asset

Question 3

Operating lease

Answer 3

Fundamental rights and responsibilities of ownership are retained by the lessor and the lessee merely is using the asset temporarily

Question 4

Annual Amortization Formula

Answer 4

Present value of lease payment / Lease terms

Question 5

lessee

Answer 5

user of a leased asset

Question 6

lessor

Answer 6

owner of a leased asset.

Question 7

purchase option

Answer 7

a provision of some lease contracts that gives the lessee the option of purchasing the leased property during, or at the end of, the lease term at a specified price.

Question 8

residual value

Answer 8

or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.

Question 9

If the lease payments have a total value that represents “substantially all” of the asset’s fair value, it is logical to identify the contract as Blank______.

Answer 9

equivalent to a sale

Question 10

The amortization table for an operating lease allows the lessee to allocate each lease payment to Blank______ and Blank______.

Answer 10

interest expense; reduction of the lease liability

Question 11

Amortization of the right-of-use asset for an operating lease F

Answer 11

is calculated as the lease payment minus interest expense.

Question 12

The incremental borrowing rate is

Answer 12

the rate the lessee would pay a bank to borrow funds.

Question 12

The short-cut method of accounting for leases

Answer 12

may be used if the lease has a lease term (including any options to renew or extend) of twelve months or less.

Question 12

Value of asset at end of first year formula

Answer 12

Value of asset + interest charged - lease payment

Question 13

PV of lease

Answer 13

Lease amount * Pv annuity

Question 13

Profit on lease

Answer 13

PV of the lease - cost of the equipment

Question 14

residual value

Answer 14

or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.

Question 15

under GAAP

Answer 15

a lessee only remeasures the variable lease payments that depend on an index or rate when the lessee remeasures the ROU asset and lease liability for other reasons.

Question 16

under IFRS

Answer 16

a lessee remeasures the variable lease payments that depend on an index or rate whenever there is a change in the cash flows resulting from a change in that index or rate

Question 16

lessor’s gross investment in the lease

Answer 16

total of periodic rental payments plus any residual value.