[THEORY] Direct Financing Lease - LESSOR

Question 1

Gross investment in the lease is equal to

a. Sum of the lease payments receivable by a 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 the 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 1

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

Question 2

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 2

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

Question 3

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

Answer 3

c. Receivable equal to net investment in the lease and recognize finance payments by reduction of debt and taking interest to income statement.

Question 4

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 4

b. Net investment in the lease

Question 5

The lease receivable in a direct financing lease is

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

Answer 5

c. The present value of lease payments.

Question 6

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 cost incurred by the lessor

Answer 6

c. Recognition of dealer profit at inception of the lease

Question 7

All of the following 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 7

d. All would be included

Question 8

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

Answer 8

c. In decreasing amounts during the term of the lease

Question 9

In a direct financing lease, unearned interest income should be

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

Answer 9

a. Amortized over the lease term using the interest method.

Question 10

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

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

Answer 10

d. All of these statements are correct.