Far-Lease

Question 1

Factors an entity should assess in determining whether the lessee has a significant incentive to exercise an option to extend the lease include all except

Answer 1

The amount of the fixed lease payments for the original lease period.

Question 2

Which of the following should be reported as a stockholders equity contra account

Answer 2

Cumulative foreign exchange translation loss

Question 3

All of the following items are examples of common variable lease provisions, EXCEPT

Answer 3

Estimated life of the underlying asset

Question 4

During 20x1, Krey Co., increased the estimated quantity of copper recoverable from its mine. Krey uses the units of production depletion method. As a result of the change, which of the following should be reported in Kreys 20x1 financial statements?

Answer 4

Neither cumulative effect of a change in accounting principle nor pro forma effects of retroactive application of new depletion base.

Question 5

Crane Manufacturing leases a machine from Frank Leasing. Ownership of the machine returned to Frank after the 15 year lease expires. The machine is expected to have an economic life of 17 years. At this time, Frank is unable to predict the collectibility of the lease payments to be received from Crane. The present value of the lease payments exceeds 90% of the fair value of the machine. What is the appropriate classification of this lease for Crane?

Answer 5

Finance

Question 6

Which of the following is a criterion for a lease to be classified as a finance lease in the books of a lessee?

Answer 6

The lease contains a purchase option that is reasonably certain to be exercised.

Question 7

An entity is required to remeasure variable lease payments every time an adjustment to the lease payments takes effect that could result in change in the contractually required cash flows. The entity prepare their financial statements in accordance with:

Answer 7

IFRS

Question 8

Steam Co. acquired equipment under a finance lease for six years. Lease payments were $60,000 payable annually at year end. The interest rate was 5% with an annuity factor for six years of 5.0757. The present value of the payments was equal to the fair market value of the equipment. What amount should steam report aS interest expense at the end of the first year of the lease?

Answer 8

$15,227

Question 9

Arno Co. did not record a credit purchase of merchandise made prior to year end. However, he merchandise was correctly included in the year end physical inventory. What effect did the omission of reporting the purchase of merchandise have on Arnos balance sheet at year end?

Answer 9

Assets: No effects
Liabilities: Understated

Question 10

Company J acquire all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net asset acquired. How should Company J determine the amounts to be reported for the plant and equipment and long term debt acquired from Company K?

Answer 10

Plant and equipment, fair value, Long term debt, fair value

Question 11

Cady salons leased equipment from Smith Co. on January 1, 20x1, in an operating lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due at each January 1 beginning January 1, 20x1. The amortization of the right of use asset for the reporting year ending December 31, 20x1 would be:

Answer 11

$5,200

$6,800 (10% x ($80,000 - $12,000) so amortization will be $5,200 ($12,000 - $6,800)

Question 12

On August 1 of the current year, Kern Company leased a machine to Day Company for a 6-year period requiring payments of $10,000 at the beginning of each year. The machine cost $48,000, which is the fAir value at the lease date, and has an estimated life of eight years with no residual value. Kerns implicit interest rate is 10% and present value factors are as follows:

• Present value of an annuity due of $1 at 10% for 6 periods: 4.791
• Present value of an annuity due of $1 at 10% for 8 periods: 5.868

Kern appropriately recorded the lease as a sales type lease. At the commencement of the lease, before any payments, the lease receivables account balance should be:

Answer 12

$47,910

Question 13

What expenses and/or losses result from the development and production of software to be sold or leased?

Answer 13

• Impairment loss
• Amortization expense
• Research and development expense

-ALL OF THE ANSWER CHOICES ARE POSSIBLE EXPENSES OR LOSSES.

Question 14

The initial measurement of the right of use asset includes all of the following EXCEPT:

Answer 14

The amount of any fee related to extending the initial lease term.

Question 15

When a lessee has an operating lease and the payments required in the lease occur at the beginning of the lease period:

Answer 15

The balance in the right-of-use asset will be more than the balance in the lease liability account at the beginning of the second year of the lease.

Question 16

Green Co. incurred leasehold improvement costs for its leased property. The estimated useful life of the improvements was 15 years. The remaining term of the non renewable lease was 20 years. These costs should be:

Answer 16

Capitalized and depreciated over 15 years.

Question 17

On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate: 1 pound = $1.43). At the company’s December 31 fiscal year-end, the exchange rate was 1 pound = $1.45. The exchange rate was 1 pound = $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain (loss) from foreign currency translation when the receivable is collected?

Answer 17

$100

Question 18

A corporation is in the final stages of developing a computer software program that will be sold to the general public. The company’s costs related to the software are as follows:

• Development of Working Model - $4 million
• Customer support and training - $2 million
• Product master production - $1 million.

The costs associated with the product master production were incurred after the establishment of technological feasibility. What amount, if any, should the corporation expense against earnings?

Answer 18

$6 million

(4 million + 2 million = $6 million)

After = capitalized 
During = expense

Question 19

Instead of the usual cash dividend, Evin Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandises carrying amount over its market value should be:

Answer 19

Reported as reduction in income

Question 20

Which of the following is a similarity between IFRS and U.S. GAAP in accounting for defined benefit pension plans?

Answer 20

Both U.S. GAAP and IFRS use service cost in computing benefit cost (pension expense).

Question 21

How should the effect of a change in accounting estimate be accounted for?

Answer 21

In the period of change and future periods if the change affects both.

Question 22

Leasing is an important activity:

Answer 22

For many organizations

Question 23

On December 31, 20x4, Jefferson Corporation had capitalized costs for a new computer software product with an economic life of four years. Sales for 20x5 were 27% of expected total sales of the software. On December 31, 20x5, the software had a net realizable value equal to 80% of the capitalized cost. What percentage of the original capitalized cost should be reported as the net amount on Jefferson’s December 31, 20x5, balance sheet?

Answer 23

73%

*Greater of depr 25% (1/4) or ratio of current to total revenues given 27%