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Financial Accounting 3 > Midterm Examination > Flashcards

Midterm Examination Flashcards

1
Q

In a lease that is recorded as a sales-type lease by the lessor, interest revenue

a. Shall be recognized over the lease term using the interest method
b. Shall be recognized over the lease term using the straight-line method
c. Shall be recognized in full as revenue at the inception of the lease
d. Does not arise

A

a. Shall be recognized over the lease term using the interest method

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2
Q

What is the cost of the right-of-use asset acquired in a finance lease?

a. The absolute sum of the lease payments over the lease term
b. The present value of the lease payments including executory costs discounted at an appropriate rate
c. The present value of the lease payments exclusive of executory costs discounted at an appropriate rate
d. The present value of the market value of the asset discounted at an appropriate rate

A

ANSWER: c. The present value of the lease payments exclusive of executory costs discounted at an appropriate rate

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3
Q

The carrying amount of the right-of-use asset from the capitalization of a lease would be periodically reduced by

a. Total lease payment
b. Portion of the lease payment allocable to interest
c. Portion of the lease payment allocable to the reduction of the lease liability
d. Depreciation of the asset

A

ANSWER: d. Depreciation of the asset

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4
Q

A lease liability is measured at

a. The absolute amount of lease payments
b. The present value of lease payments
c. The present value of fixed lease payments
d. The fair value of the underlying asset

A

ANSWER: b. The present value of lease payments

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5
Q

The lessee’s lease liability for a finance lease would be periodically reduced by

a. Lease payment plus the depreciation of the asset
b. Lease payment less the depreciation of the asset
c. Lease payment less the portion allocated to interest
d. Lease payment

A

ANSWER: c. Lease payment less the portion allocated to interest

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6
Q

A six-year finance lease entered into on December 31 of the current year specifies equal annual lease payments due on December 31 of each year. The first annual lease payment paid on December 31 of the current year consists of which of the following?

a. Interest expense
b. Lease liability
c. Both interest expense and lease liability
d. Neither interest expense nor lease liability

A

ANSWER: b. Lease liability

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7
Q

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 payments is less than 50% of the fair value of the asset.
d. The lease term is a major part of the useful life of the asset.

A

ANSWER: d. The lease term is a major part of the useful life of the asset.

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8
Q

The lessee’s lease liability for a finance lease would be periodically reduced by

a. Lease payment plus the depreciation of the asset
b. Lease payment less the depreciation of the asset
c. Lease payment less the portion allocated to interest
d. Lease payment

A

ANSWER: c. Lease payment less the portion allocated to interest

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9
Q

Which of the following statements concerning residual value guarantee is appropriate for the lessee?

a. The asset and related liability should be increased by the absolute amount of the residual value.
b. The asset and related liability should be decreased by the absolute amount of the residual value.
c. The asset and related liability should be decreased by the present value of the residual value.
d. The asset and related liability should be increased by the present value of the residual value.

A

ANSWER: d. The asset and related liability should be increased by the present value of the residual value.

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10
Q

What is the treatment of initial direct costs incurred by the lessee in a finance lease?

a. Added to the lease liability
b. Added to the carrying amount of the right-of-use asset
c. Expensed immediately
d. Added to the carrying amount of the right-of-use asset and lease liability

A

ANSWER: b. Added to the carrying amount of the right-of-use asset

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11
Q

Which of the following statements concerning residual value guarantee is appropriate for the lessee?

a. The asset and related liability should be increased by the absolute amount of the residual value.
b. The asset and related liability should be decreased by the absolute amount of the residual value.
c. The asset and related liability should be decreased by the present value of the residual value.
d. The asset and related liability should be increased by the present value of the residual value.

A

ANSWER: d. The asset and related liability should be increased by the present value of the residual value.

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12
Q

In computing depreciation of a right-of-use asset under a lease, the lessee should deduct

a. The residual value guarantee and depreciate over the lease term.
b. An unguaranteed residual value and depreciate over the lease term.
c. The residual value guarantee and depreciate over the useful life of the asset.
d. An unguaranteed residual value and depreciate over the useful life of the asset.

A

a. The residual value guarantee and depreciate over the lease term.

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13
Q

Lessors shall recognize assets held under a finance lease as a receivable at an amount equal to the

a. Gross investment in the lease
b. Net investment in the lease
c. Gross rentals
d. Residual value, whether guaranteed or unguaranteed

A

ANSWER: b. Net investment in the lease

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14
Q

Under a sales-type lease, what is the meaning of gross investment in the lease?

a. Present value of lease payments
b. Absolute amount of lease payments
c. Present value of lease payments plus the present value of unguaranteed residual value
d. Sum of the absolute amount of lease payments and residual value, whether guaranteed or unguaranteed

A

ANSWER: d. Sum of the absolute amount of lease payments and residual value, whether guaranteed or unguaranteed

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15
Q

The primary difference between a direct financing lease and a sales-type lease is the

a. Recognition of the manufacturer or dealer profit at the inception of the lease
b. Manner in which rental collections are recorded as rental income
c. Depreciation recorded each year by the lessor
d. Allocation of initial direct costs incurred by the lessor over the lease term

A

ANSWER: a. Recognition of the manufacturer or dealer profit at the inception of the lease

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16
Q

What is the treatment of an unguaranteed residual value in determining the cost of goods sold under a sales-type lease?

a. The unguaranteed residual value is ignored.
b. The unguaranteed residual value is added to the cost of the underlying asset.
c. The unguaranteed residual value is deducted from the cost of the underlying asset at its absolute amount.
d. The unguaranteed residual value is deducted from the cost of the underlying asset at its present value.

A

ANSWER: d. The unguaranteed residual value is deducted from the cost of the underlying asset at its present value.

17
Q

Under a direct financing lease, the excess of aggregate rentals over the cost of the underlying asset should be recognized as interest income of the lessor

a. In increasing amounts during the term of the lease
b. In constant amounts during the term of the lease
c. In decreasing amounts during the term of the lease
d. After the cost of the underlying asset has been fully recovered through rentals

A

ANSWER: c. In decreasing amounts during the term of the lease

18
Q

Net investment in a direct financing lease is equal to

a. Cost of the asset
b. Cost of the asset plus initial direct costs paid by the lessor
c. Cost of the asset minus guaranteed residual value
d. Cost of the asset plus unguaranteed residual value

A

ANSWER: b. Cost of the asset plus initial direct costs paid by the lessor

19
Q

Gross investment in the lease is equal to

a. Sum of the lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor
b. The lease payments under a finance lease of the lessor
c. Present value of lease payments under a finance lease of the lessor and any unguaranteed residual value
d. Present value of the lease payments under a finance lease of the lessor

A

ANSWER: a. Sum of the lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor

20
Q

The excess of the fair value of the underlying asset at the inception of the lease over its carrying amount shall be recognized by the dealer lessor as

a. Manufacturer profit from a sales-type lease
b. Manufacturer profit from a direct financing lease
c. Unearned income from a sales-type lease
d. Unearned income from a direct financing lease

A

ANSWER: a. Manufacturer profit from a sales-type lease

21
Q

In a lease that is recorded as a sales-type lease by the lessor, interest revenue

a. Shall be recognized over the lease term using the interest method
b. Shall be recognized over the lease term using the straight-line method
c. Shall be recognized in full as revenue at the inception of the lease
d. Does not arise

A

ANSWER: a. Shall be recognized over the lease term using the interest method

22
Q

The right-of-use asset is reported as

a. Noncurrent as a separate line item
b. Property, plant, and equipment
c. Intangible asset
d. Investment property

A

ANSWER: a. Noncurrent as a separate line item

23
Q

Under IFRS, a lessee is required to recognize

a. Right-of-use asset but not lease liability
b. Lease liability but not right-of-use asset
c. Right-of-use asset and lease liability
d. Neither right-of-use asset nor lease liability

A

ANSWER: c. Right-of-use asset and lease liability

24
Q

All of the following would be included in the lease receivable, except

a. Unguaranteed residual value
b. A purchase option that is reasonably certain
c. Guaranteed residual value
d. Initial direct cost

A

ANSWER: d. Initial direct cost

Financial Accounting 3 (24 decks)

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