Final Quiz

Question 1

Which one of these characteristics does “not” apply to a financial lease?

A. The lease is usually not fully amortized.
B. The lessee is responsible for the maintenance of the leased assets.
C. Generally, the lease cannot be cancelled.
D. The lessee usually has the right to renew the lease on expiration.
E. The lessee must pay all of the lease payments.

Answer 1

A. The lease is usually not fully amortized.

Question 2

A financial lease has which one of the following characteristics?

A. lessor maintains leased asset
B. no right of renewal
C. cancellation clause
D. lessor must make all lease payments
E. fully amortized

Answer 2

E. fully amortized

Question 3

An operating lease generally:

A. has a term that exceeds the economic life of the leased asset.
B. is fully amortized.
C. cannot be cancelled.
D. requires the lessee to return the leased asset to the lessor if the lease is cancelled.
E. requires the lessee to maintain the leased asset.

Answer 3

D. requires the lessee to return the leased asset to the lessor if the lease is cancelled.

Question 4

The city of Plainview “sold” its maintenance facility in an all-cash transaction and used the proceeds to improve the city’s financial position. The city then “leased” the building from the new owner on a non-cancellable basis. The city will be responsible for the maintenance and upkeep of the facility. These transactions illustrate:

A. an operating lease.
B. a leveraged lease.
C. a sale and leaseback.
D. a fully amortized lease.
E. both an operating lease and a sale and leaseback.

Answer 4

C. a sale and leaseback.

Question 5

In a direct lease arrangement, the owner of the asset is:

A. either the lessee or the lessor.
B. the lessee.
C. the lessor.
D. either the lessee or the manufacturer.
E. the asset's manufacturer.

Answer 5

C. the lessor.

Question 6

For accounting purposes, which one of the following conditions would automatically cause a lease to be classified as a capital lease?

A. The lessee can purchase the asset at fair market value at the end of the lease.
B. The lease transfers ownership of the asset to the lessee by the end of the lease term.
C. The lease term equals 60 percent of the asset’s estimated economic life.
D. The present value of the lease payments equals 76 percent of the asset’s fair market value at lease inception.
E. The lessor can renew the lease at the end of the lease term.
B. The lease transfers ownership of the asset to the lessee by the end of the lease term.

Answer 6

B. The lease transfers ownership of the asset to the lessee by the end of the lease term.

Question 7

A lease that is cancelable cannot be recorded as a capital lease.
True or False?

Answer 7

True

cancelable -> operating lease

Question 8

The methods of accounting for a lease by the lessee are

Answer 8

operating and capital lease methods.

Question 9

The total charges to operations over the lease term are

Answer 9

the same for a capital lease as an operating lease.

Question 10

Any lease that does not qualify as a direct financing lease or a sales-type lease is classified and accounted for by the lessor as a(n)

Answer 10

operating lease