IA 2 - Operating Lease (CHAP 12) Flashcards
Rent received in advance by the lessor in an operating lease should be recognized as revenue
a. When received
b. At the lease inception
c. at the lease expiration
d. In the period specified by the lease
d. In the period specified by the lease
When should a lessor recognize in the income a non-refundable lease bonus paid by a lessee?
a. When received
b. At the inception of the lease
c. At the lease expiration
d. Over the lease term
d. Over the lease term
Lease payments under an operating lease shall be recognized as an income by the lessor on
a. Straight line basis over the lease term
b. Diminishing balance basis
c. Sum of units basis
d. Cash basis
a. Straight line basis over the lease term
In an operating lease that is recorded by the lessor, the equal monthly rental payments should be
a. Recorded as reduction of depreciation.
b. Allocated between reduction in lease receivable and interest expense.
c. Recorded as reduction in the lease receivable.
d. Recorded as a rental income.
d. Recorded as a rental income.
Which statement characterizes an operating lease?
a. The lessee records depreciation and interest.
b. The lessee records a lease obligation.
c. The lessor transfers title of the underlying asset to the lessee for the duration of the lease term.
d. The lessor records depreciation and lease revenue
d. The lessor records depreciation and lease revenue
The classification of the lease is normally carried out
a. At the end of the lease term
b. After a “cooling off” period of one year
c. At the inception of the lease
d. When the entity deems it to be necessary
c. At the inception of the lease
The classification of the lease on the part of lessor as either operating or finance lease is based on
a. The length of the lease.
b. The transfer of the risk and rewards of ownership.
c. The lease payments being at least 50% of fair value.
d. The economic life of the underlying asset.
b. The transfer of the risk and rewards of ownership.
All the following situations would prima facie lead to a lease being classified as a finance lease, except
a. Transfer of ownership to the lessee.
b. Option to purchase at a value below the fair value of the underlying asset.
c. The lease term is for a major part of the asset’s life
d. The present value of the lease payments is 50% of the fair value of the asset
d. The present value of the lease payments is 50% of the fair value of the asset
In the case of lease of land and building, the lease payments should be split
a. According to relative fair value of the two elements.
b. Based on the useful life of the two elements.
c. Using the sum of digits method.
d. According to method devised by the entity
a. According to relative fair value of the two elements.
Where there is lease of land and building and the title to the land is not transferred, generally the lease is treated as if
a. The land is finance lease.
b. The land is finance and the building is operating.
c. The land is operating and the building is finance.
d. The land and building are on operating lease.
c. The land is operating and the building is finance.
The accounting concept that is principally used to classify leases into operating the finance on the part of lessor is
a. Substance over form
b. Prudence
c. Neutrality
d. Completeness
a. Substance over form
Which statement is correct regarding the lease capitalization criteria?
a. The lease transfer ownership to the lessor.
b. The lease contains a purchase option.
c. The lease term is equal to at least 75% of the economic life of the underlying asset.
d. The lease payments are at least 90% of fair value of asset.
c. The lease term is equal to at least 75% of the economic life of the underlying asset.
Which condition would require lease capitalization?
a. The lease does not transfer title to the lessee.
b. There is an uncertain purchase option.
c. The present value of the lease payment is significantly more than the fair value of the asset.
d. The lease term is below the useful life of asset.
c. The present value of the lease payment is significantly more than the fair value of the asset.
One of the four determinative criteria for a finance lease specifies that the lease term be equal to or greater than
a. The economic life of the underlying asset.
b. 90 percent of the economic life of the asset.
c. 75 percent of the economic life of the asset.
d. 50 percent of the economic life of the asset.
c. 75 percent of the economic life of the asset.
One of the four determinative criteria for a finance lease is that the present value at the beginning of the lease term of the lease payments equal or exceeds
a. The fair value of the underlying asset
b. 90 percent of the fair value of the underlying asset
c. 75 percent of the fair value of the underlying asset
d. 50 percent of the fair value of the underlying asset
b. 90 percent of the fair value of the underlying asset
