FARE leases

Question 0

Is a direct financing lease is is the lessor earning a trading profit as well as interest income

Answer 0

No interest income only

Question 1

True or false to be classified as a capital lease the lease term must be at least 90% of the estimated life of the property

Answer 1

False it must be 75%

Question 2

At what amount should the leasee record an asset under a capital lease

Answer 2

At the present value of the minimum lease payments

Question 3

When would the lessors interest rate be used to determine present value lease payments

Answer 3

If it is less than the lessee’s borrowing rate and known to the Lessee

Question 4

How should a leased asset containing a bargain purchase option be depreciated?

Answer 4

Using the economic life of the asset

Question 5

Under an operating lease how should rentals be recognized by the lessor?

Answer 5

By taking all rental payments (regardless as to when they are made) and allocating them on a straight line basis over the life of the lease

Question 6

How is unearned income calculated in a direct financing lease?

Answer 6

The difference between the gross investment and the carrying amount of the asset

Question 7

What is the treatment of gross profit on the sale portion of a sale leaseback transaction when the seller leasee will retain the right to substantially all the use of the property

Answer 7

Deferred and amortized

Question 8

True or false executory costs are excluded in the calculation of the present value of the minimum lease payments

Answer 8

True

Question 9

Should guaranteed residual value be included in the calculation of lease liability

Answer 9

Yes at its present value

Question 10

If the present value of the minimum lease payments is 80% of the fair market value will the lease be considered a capital lease?

Answer 10

No 90% is required

Question 11

Will a least be considered a capital lease if ownership transfers to the leasee by the end of the lease term

Answer 11

Yes