[TFA] Lessor Accounting

Question 1

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

Answer 1

d. In the period specified by the lease

Question 2

When should a lessor recognize in income a nonrefundable 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

Answer 2

d. Over the lease term

Question 3

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

Answer 3

a. Straight line basis over the lease term

Question 4

In an operating lease 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.

Answer 4

d. Recorded as a rental income.

Question 5

Which statement characterizes an operating lease?

a. The lessor records depreciation and interest.
b. The lessor records a lease receivable
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.

Answer 5

d. The lessor records depreciation and lease revenue.

Question 6

The classification of a 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 necessary

Answer 6

c. At the inception of the lease

Question 7

The classification of a lease on the part of the lessor as either operating or finance lease is based on

a. The length of the lease.
b. The transfer of the risks and rewards of ownership.
c. The lease payments being at least 50% of fair value.
d. The economic life of the underlying asset.

Answer 7

b. The transfer of the risks and rewards of ownership.

Question 8

All of 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.

Answer 8

d. The present value of the lease payments is 50% of the fair value of the asset.

Question 9

In 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.

Answer 9

a. According to relative fair value of the two elements.

Question 10

Where there is a 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 an operating lease.

Answer 10

c. The land is operating and the building is finance.

Question 11

The accounting concept that is principally used to classify leases into operating and finance on the part of lessor is

a. Substance over form
b. Prudence
c. Neutrality
d. Completeness

Answer 11

a. Substance over form

Question 12

Which is correct regarding lease capitalization criteria?

a. The lease transfers 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 90% of fair value of asset.

Answer 12

c. The lease term is equal to at least 75% of the economic life of the urderlying asset.

Question 13

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 significantly more than the fair value of the asset.
d. The lease term is below the useful life of asset.

Answer 13

c. The present value of the lease payments is significantly more than the fair value of the asset.

Question 14

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.

Answer 14

c. 75 percent of the economic life of the asset.

Question 15

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 equals 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

Answer 15

b. 90 percent of the fair value of the underlying asset

Question 16

Gross investment in the lease is equal to

a. Sum of the lease payments receivable 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.

Answer 16

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

Question 17

Net investment in a direct financing lease is equal to

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

Answer 17

b. Cost of the asset plus initial direct cost pald by lessor

Question 18

Which is the correct accounting treatment for a finance lease in the accounts of a lessor?

a. Noncurrent asset equal to net investment in lease and recognize all finance payments in income.
b. Receivable equal to gross investment and recognize all finance payments by reduction of debt.
c. Receivable equal to net investment and recognize finance payments by reducing debt and taking interest to income.
d. Receivable equal to net investment and recognize all finance payments by reduction of debt.

Answer 18

c. Receivable equal to net investment and recognize finance payments by reducing debt and taking interest to income.

Question 19

Lessors shall recognize asset 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

Answer 19

b. Net investment in the lease

Question 20

The lease receivable in a DIRECT FINANCING LEASE is

a. The gross amount of lease payments
b. Gross rentals minus the fair value of the leased asset.
c. The present value of lease payments.
d. The cost of the asset less accumulated depreciation

Answer 20

c. The present value of lease payments.

Question 21

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

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

Answer 21

c. Recognition of dealer profit at inception of the lease.

Question 22

All would be included in the lease receivable, except

a. Guaranteed residual value
b. Unguaranteed residual value
c. A purchase option that is reasonably certain
d. All would be included

Answer 22

d. All would be included

Question 23

Under a DIRECT FINANCING LEASE, the excess of aggregate rentals over the cost of the underlying asset should be recognized as 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 cost of the asset has been fully recovered through rentals

Answer 23

c. In decreasing amounts during the term of the lease

Question 24

In a DIRECT FINANCING LEASE, unearned interest income should be

a. Amortized over the lease term using interest method.
b. Amortized over the lease term using straight line.
c. Ignored
d. Recognized at the lease expiration.

Answer 24

a. Amortized over the lease term using interest method.

Question 25

Which statement is true regarding initial direct costs incurred by the lessor?

a. In a direct financing lease, initial direct costs are added to the net investment in the lease.
b. In a sales type lease, initial direct costs are expensed as component of cost of goods sold.
c. In an operating lease, initial direct costs incurred by the lessor are allocated over the lease term.
d. All of these statements are correct.

Answer 25

d. All of these statements are correct.

Question 26

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 26

a. Gross investment less unearned finance income

Question 27

Which statement characterizes sales type lease?

a. The lessor recognizes only interest revenue.
b. The lessor recognizes only dealer profit.
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 27

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

Question 28

The profit 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 28

b. Be recognized in the normal way on the transaction

Question 29

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 29

b. Recognized over the lease term using interest method

Question 30

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 dnect financing lease

Answer 30

c. Manufacturer profit from a sales type lease