Lease Quiz

Question 0

Direct financing lease

Answer 0

Interest revenue is the only time reported on the income statement over the lease term.

Question 1

Sales type lease

Answer 1

Sales revenue (the present value of minimum lease payments) less the carrying amount of the leader asset is reported on the lessor’s income statement at the inception of the lease

Question 2

Operating lease - lessee

Answer 2

Interest revenue is the only item reported on the income statement over the lease term

Rental payments are recognized on a straight line basis even though the lease calls for payments that increase over the term of the lease

Question 3

Operating lease -lessor

Answer 3

Initial direct cost should be treated as an asset and amortized over the life of the lease in a straight line basis

Question 4

Unearned interest revenue

Answer 4

The difference between the fair value of the asset leases and the total payments to be received over the lease term

Question 5

Residual value

Answer 5

Included in the lessor’s dross investment whether guaranteed or unguaranteed

Question 6

Capital lease

Answer 6

Depreciation expense related to the leased asset is reported on the lessee’s income statement over the lease term

Question 7

Implicit rate

Answer 7

Produces a desires rate of rerun which causes the aggregate present value of the minimum lease payments to be equal to the fair value of the lease property

Question 8

Interest method

Answer 8

Produces a constant periodic rate of return on the net investment

Question 9

Present value of the minimum lease payments

Answer 9

Should be recorded as both an asset and a liability by the lesser when the lease contains a bargain purchase option

Question 10

Bargain purchase option

Answer 10

Lessee’s right to purchase leased property for an amount substantially lower then the expected FV at exercise date

Question 11

Sales lease back

Answer 11

The substance is this transaction is that is consists of two separate and distinct transactions

Question 12

Annuity due

Answer 12

A lease agreement which requires the annual payment to be made at the beginning of each period.

Question 13

Initial direct costs

Answer 13

Costs, such as appraisal fees incurred by the lessor in setting up the lease agreement

Question 14

Current lease obligation

Answer 14

The principal portion of the lease liability which must be paid within the next operating cycle

Question 15

Lessee -owns

Answer 15

O- owns transfer at end of lease
W- written option for bargain purchase
N- 90% of lease property PV/FV greater than 90%
S- 75% lease term/economic life of asset greater than 75%

Question 16

Lessor -LUC

Answer 16

L- lease owns the leases property
U- uncertainties do not exist regarding any unreimburseable cost to be incurred by lessor
C- collectibility if he lease payments is reasonably predictable

Question 17

Operating lease

Answer 17

Lessee
Dr rent expense
Cr cash

Lessor
Dr cash
Cr rental income

Question 18

Sales type capital lease

Answer 18

1-1-y1
Dr lease receivable
Cr sale
To record the sale of (lease of an asset)

1-1y1
Dr cash
Cr lease receivable
To record the collection of the first installment of the lease from the lessee

12-31-y1
Dr interest recieve able
Cr interest income (lease)
To record the earnings is interest in the outstanding principal amount of which another payment is due the first of next year

Dr cash
Cr lease receivable
Cr interest receivable
Record collection of second installment payment from lease

Question 19

Free or uneven lease payments should be

Answer 19

Recognized as revenue on a straight line basis and prorated over the life of the lease

Question 20

Initial direct cost of a lease

Answer 20

Should be capitalized and amortized straight line over life of the lease

Question 21

A refundable Security deposit in the balance sheet of the lessor and lessee

Answer 21

Balance sheet of lessor - liability

Balance sheet of lessee - receivable

Question 22

Leasehold improvements should be amortized over

Answer 22

The shorter of the remaining lease term or the useful life of the asset

Question 23

Minimum lease payments includes any penalty for failure to renew

Answer 23

True