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Intermediate Accounting II > Chapter 21 - Accounting for Leases > Flashcards

Chapter 21 - Accounting for Leases Flashcards

1
Q

Leases which are, in effect, installment purchases are ______.

A

Capitalized

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2
Q

Companies become involved in leasing to other companies because for:

Interest revenue
High residual values
Tax incentives
All of the above

A

All of the above

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3
Q

When a lease term is equal to 75 percent of the estimated economic life of the leased property, it is an operating or capital lease?

A

Capital lease

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4
Q

In computing the present value of the minimum lease payments, the lessee should use what rate?

A

The lower of the incremental borrowing rate or the implicit rate

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5
Q

The lessee records a capital lease as an asset and liability at the lower of which amounts?

A

Present value of the minimum lease payments

FMV of the leased asset

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6
Q

An operating lease has (less/more) reported debt than a capital lease.

A

less

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7
Q

An operating lease has (less/more) assets than a capital lease.

A

less

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8
Q

An operating lease has (less/more) income early in the life of the lease than a capital lease.

A

more

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9
Q

A lease that involves a dealer’s profit is a _____ lease.

A

sales-type

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10
Q

Lease payments receivable may include which of the following:

A bargain purchase option
A penalty for failure to renew
An unguaranteed residual value
All of the above

A

All of the above

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11
Q

In computing lease payments, the amount recovered by the lessor is the fair market value of the leased asset minus the ______.

A

Present value of the asset’s residual value

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12
Q

The lessee’s capitalized amount is the sum of _____ and _____.

A

Present value of the annual rental payments

Present value of guaranteed residual value

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13
Q

What changes if a sales-type lease has an unguaranteed residual value rather than a guaranteed residual value?

A

The sales price of the asset

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14
Q

In what type of lease does a lessor expense initial direct costs in the year of incurrence?

A

Sales-type lease

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15
Q

A lease that transfers the benefits and risks of ownership should be classified as an operating lease or a capital lease?

A

Capital lease

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16
Q

Do minimum lease payments include guaranteed residual value?

A

Yes

17
Q

Do minimum lease payments included unguaranteed residual value?

A

No

18
Q

Can capital leases be cancelable?

A

No

19
Q

Is unguaranteed residual value included in the calculation of depreciation expense?

A

No

20
Q

When a bargain purchase option exists, over how long should the lessee depreciation the asset?

A

The asset’s economic life

21
Q

With leasing, is the interest rate often higher or lower?

A

Higher

22
Q

What is the maximum amount at which leased property can be capitalized?

A

Fair value

23
Q

Is off-balance sheet financing a benefit to a lessor

A

No

24
Q

If a lease is not a direct financing lease or sales-type lease, then it must be what type of lease for the lessor?

A

Operating lease

25
Q

In a(n) ______ lease, initial direct costs are added to the net investment in the lease.

A

direct-financing

26
Q

In a(n) _____ lease, initial direct costs are expensed in the year of incurrence.

A

sales-type

27
Q

In a(n) ______ lease, initial direct costs are deferred and allocated over the lease term.

A

operating

28
Q

Leasing eliminates the risk of obsolescence to the lessee. (true/false)

A

false

29
Q

Leasing is a form of off-balance sheet financing for the lessee. (true/false)

A

true

30
Q

The total charges to operating over the lease term for a capital lease are (greater than/less than/equal to) those of an operating lease.

A

equal to

31
Q

When is guaranteed residual value realized by the lessor?

A

At the end of the lease teram

32
Q

What does a lessee do in the case of guaranteed residual value?

A

Make an additional payment at the end of the lease

33
Q

How should lease liabilities be disclosed?

Current liabilities
Noncurrent liabilities
Partially current/partially noncurrent liabilities

A

Partially current/partially noncurrent

Intermediate Accounting II (6 decks)

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