Sales Type and Direct Financing Leases

Question 1

Direct financing leases are a type of capital lease. TF

Answer 1

True

Question 2

If the leased asset BV = FV the lease is a ____.

Answer 2

Direct financing lease

Question 3

In a DFL the lessor earns only _______ on the lease.

Answer 3

Interest

Question 4

If the leased asset BV does not = FV the lease is a _____.

Answer 4

Sales type lease

Question 5

On sales type leases, lessors immediately earn the gross margin on the leased asset as well as interest over the lease term. TF

Answer 5

True

Question 6

Inception is identical for DFLs and STLs. TF

Answer 6

False

Question 7

Gross method - lessor accounting for DFL’s at inception would include a db. to Lease Receivable and a cr. to Asset. TF

Answer 7

False, this is the journal entry for the net method

Question 8

Gross method - lessor accounting for DFL’s at inception would include a dr. to Lease Receivable, a cr. to Unearned Interest, and a cr. to Asset. TF

Answer 8

True

Question 9

At lease inception the STL entry would appear as…

Answer 9

dr. Lease Receivable dr. COGS cr. Unearned Interest cr. Asset cr. Sales

Question 10

Both DFLs and STLs base the lease payment on _____ value.

Answer 10

Fair

Question 11

For these type of problems its best to set up a _____ ______ table.

Answer 11

Lease amortization table.

Question 12

Net Lease Recievable Balance = PV of the present value of the minimum lease payments - the PV of the residual value at the end of the lease term. TF

Answer 12

False, + the PV of the residual value

Question 13

_____ ______ = the total lease payments - the FV of the property at inception

Answer 13

Total interest Revenue

Question 14

The annual journal entry to record a capital lease is…

Answer 14

dr. Interest Expense (PV of lease payments x int rate)
dr. Lease Liability (Plug)
cr. Cash (given in lease agreement)

Question 15

A lease amoritzation table would have what columns?

Answer 15

Date, Int Expense, Lease Payment, Principal, CV of lease

Question 16

In a STL, interest recieveable should be recognized (in full/ SL method/ EI method) by the lessor?

Answer 16

Effective Interest Method

Question 17

What is an unguaranteed residual in an STL?

Answer 17

The portion that is not sold

Question 18

The PV of the unguaranteed residual is subtracted from sales and COGS. TF

Answer 18

True, subtracted from both sides at the same amount

Question 19

Land leases are subject to the 4 capital lease critierion when it comes to capitalization. TF

Answer 19

False, only the beginning two. Land does not deprieciate.

Question 20

Executory costs are not included in minimum lease payments. TF

Answer 20

True

Question 21

Initial direct costs are _____ and ______ in an operating lease.

Answer 21

Capitalized, amortized

Question 22

Initial direct costs are matched immediately as expense against the sale in an STL. TF

Answer 22

True

Question 23

Initial direct costs are matched immediately as an expense agains the sale in a DFL. TF

Answer 23

False, in a DFL no sale has occured. IDC is treated as a reduction in the interest recieveable.

Question 24

A contingent rental refers to changes in lease payments that result form a future event. They are ________ as expese or revenue as they occur.

Answer 24

Recognized

Question 25

STL income to be recognized = Normal selling price - _____ ______.

Answer 25

Asset cost. STL’s are treated like sales. The profit recognized is the normal profit margin.