Chapter 21 - Accounting for Leases Flashcards
Leases which are, in effect, installment purchases are ______.
Capitalized
Companies become involved in leasing to other companies because for:
Interest revenue
High residual values
Tax incentives
All of the above
All of the above
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?
Capital lease
In computing the present value of the minimum lease payments, the lessee should use what rate?
The lower of the incremental borrowing rate or the implicit rate
The lessee records a capital lease as an asset and liability at the lower of which amounts?
Present value of the minimum lease payments
FMV of the leased asset
An operating lease has (less/more) reported debt than a capital lease.
less
An operating lease has (less/more) assets than a capital lease.
less
An operating lease has (less/more) income early in the life of the lease than a capital lease.
more
A lease that involves a dealer’s profit is a _____ lease.
sales-type
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
All of the above
In computing lease payments, the amount recovered by the lessor is the fair market value of the leased asset minus the ______.
Present value of the asset’s residual value
The lessee’s capitalized amount is the sum of _____ and _____.
Present value of the annual rental payments
Present value of guaranteed residual value
What changes if a sales-type lease has an unguaranteed residual value rather than a guaranteed residual value?
The sales price of the asset
In what type of lease does a lessor expense initial direct costs in the year of incurrence?
Sales-type lease
A lease that transfers the benefits and risks of ownership should be classified as an operating lease or a capital lease?
Capital lease
Do minimum lease payments include guaranteed residual value?
Yes
Do minimum lease payments included unguaranteed residual value?
No
Can capital leases be cancelable?
No
Is unguaranteed residual value included in the calculation of depreciation expense?
No
When a bargain purchase option exists, over how long should the lessee depreciation the asset?
The asset’s economic life
With leasing, is the interest rate often higher or lower?
Higher
What is the maximum amount at which leased property can be capitalized?
Fair value
Is off-balance sheet financing a benefit to a lessor
No
If a lease is not a direct financing lease or sales-type lease, then it must be what type of lease for the lessor?
Operating lease
In a(n) ______ lease, initial direct costs are added to the net investment in the lease.
direct-financing
In a(n) _____ lease, initial direct costs are expensed in the year of incurrence.
sales-type
In a(n) ______ lease, initial direct costs are deferred and allocated over the lease term.
operating
Leasing eliminates the risk of obsolescence to the lessee. (true/false)
false
Leasing is a form of off-balance sheet financing for the lessee. (true/false)
true
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.
equal to
When is guaranteed residual value realized by the lessor?
At the end of the lease teram
What does a lessee do in the case of guaranteed residual value?
Make an additional payment at the end of the lease
How should lease liabilities be disclosed?
Current liabilities
Noncurrent liabilities
Partially current/partially noncurrent liabilities
Partially current/partially noncurrent
