Day 4 - Leases and Bonds

Question 1

What does the finance liability equal to:

Answer 1

The difference between the Sales Price and the Fair Value of the asset

MCQ-08769

Question 2

A Lessee should record a finance Lease at:

Answer 2

The PV of minimum lease payments

The Purchase Option must also be capitalized = Purchase Option amount × decimal #

MCQ-00419

Question 3

For the Lessor, what is the JE for recording a Sales-Type lease?

Answer 3

Dr - Lease Receivable
Cr - Fixed Asset
Cr - Gain (Debit if Loss)

MCQ-00402

Question 4

Equation: Bond Premium Amortization amount

Answer 4

= Interest Cash Payment (Face Value × Stated Rate)

LESS:

Interest Expense (Carrying Amount × Mkt Rate)

MCQ-05135

Question 5

What is the initial carrying value of a lease liability?

Answer 5

PV of lease payments

MCQ-08770

Question 6

Interest paid on a discounted bond in a given period is:

Answer 6

Equal to the interest expense less the amortization of the discount

For discounted bonds the amortization of the discount is SUBTRACTED from Interest Expense to derive Interest Paid

MCQ-01251

Question 7

For a finance Lease the Lessee will record the lease as an asset and a liability at the PV of minimum lease payments.

The lease cost has what two components?

Answer 7

1. Required payments: Annual Pmts × PV (bigger #)

PLUS

2. Expected Residual Value × PV (decimal #)

Note: length of time = lease term

MCQ-08608

Question 8

In a finance lease with a written purchase option, what amount of time is used to capitalize the asset?

Answer 8

The life of the asset, less the salvage value

MCQ-00411

Question 9

The fair value of the equipment equals

Answer 9

The PV of future cash flows

Which equals

Annual rents × Annuity due PV Factor

MCQ-00400