IA2 - Sales Type Lease (CHAP 14)

Question 1

Net investment in a sales type lease is equal to

a. Gross investment less unearned finance income

b. Cost of the underlying asset

c. The lease payments

d. The lease payments less unguaranteed residual value

Answer 1

a. Gross investment less unearned finance income

Question 2

Which statement characterizes a sales type lease?

a. The lessor recognizes only interest revenue.

b. The lessor recognizes a dealer profit at lease

c. The lessor recognizes a dealer profit at lease inception and interest revenue over the lease term.

d. The lessor recognizes a dealer profit at lease inception and interest revenue over the useful life of the asset.

Answer 2

c. The lessor recognizes a dealer profit at lease inception and interest revenue over the lease term.

Question 3

The gross income on a finance lease transaction for lessors who are manufacturers or dealers should

a. Not be recognized separately from finance income

b. Be recognized in the normal way on the transaction

c. Only be recognized at the end of the lease term

d. Be recognized on a straight line over the lease term

Answer 3

b. Be recognized in the normal way on the transaction

Question 4

The excess of the fair value of asset over the carrying amount is recognized by dealer lessor as

a. Unearned income from a sales type lease

b. Unearned income from a direct financing lease

c. Manufacturer profit from a sales type lease

d. Manufacturer profit from a direct financing lease

Answer 4

c. Manufacturer profit from a sales type lease

Question 5

In a sales type lease, interest revenue should be

a. Ignored

b. Recognized over the lease term using interest method

c. Recognized over the lease term using straight line

d. Recognized in full as revenue at the inception of lease

Answer 5

b. Recognized over the lease term using interest method