Day 9 - Bonds & Leases

Question 1

What is the minimum % representing a “major part” of a leased assets economic Life?

Answer 1

75%

Note: PV of minimum lease payments equals 90%

MCQ-00406

Question 2

Equation: lease liability immediately after the first PMT

Answer 2

Annual Pmts × PV (of implicit %)

LESS: Annual PMT

ADD: PV of Guaranteed Residual Value

= Lease liability

MCQ-00574

Question 3

Equation: lease liability of an office bldg

Answer 3

PV of lease liability

A) LESS: Annual PMT

B) LESS: interest on PV of liability (CV × Implicit %)

(A - B = Amt applied to principal)

= Lease Liability

MCQ-00579

Question 4

Equation: Bond Issue Price (Discount)

Answer 4

FV × Cpn % = Cash Int. Pmts × PV @ Mkt %

PLUS:

FV × PV @ Mkt %

= Bond Issue Price

JOURNAL ENTRY:
Dr - Cash
Dr - Discount
Cr - Bond Payable (FV)

MCQ-04225

Question 5

When the effective interest method of amortization is used for bonds issued at a premium, the amount of interest payable for an interest period is calculated by multiplying the:

Answer 5

Face Value of bonds at the beginning of the period by the contractual interest rate (stated rate)

OR

Interest Payable = FV × Stated Rate %

MCQ-06932

Question 6

Equation: Unamortized Premium

Answer 6

= CV - FV (Year 1)

MCQ-05135

Question 7

For a finance lease, how is interest revenue recognized?

Answer 7

Based on the discount rate times the carrying value of the lease receivable

MCQ-00415

Question 8

In a Sales-Type (Finance) lease, what is profit equal too for the Lessor?

Answer 8

Profit = the excess of the PV of the Selling Price LESS the cost

MCQ-00409

Question 9

For a bond, interest expense equals:

Answer 9

Interest payable - Amortization of premium

MCQ-01098