1. Which statement is incorrect about initial direct costs? a. Initial direct costs incurred by the lessee in finance lase are added to the amount recognized as an asset and to the finance lease liability. b. In a direct financing lease, initial direct costs are added to the net investment in the lease. c. In a sales type lease, initial direct costs are expensed as component of cost of goods sold. d. For operating leases, initial direct costs are deferred and allocated over the lease term.
1. Which statement is incorrect about initial direct costs?
a. Initial direct costs incurred by the lessee in finance lase are added to the amount recognized as an asset and to the finance lease liability.
b. In a direct financing lease, initial direct costs are added to the net investment in the lease.
c. In a sales type lease, initial direct costs are expensed as component of cost of goods sold.
d. For operating leases, initial direct costs are deferred and allocated over the lease term.
2. If the lessor and lessee use different interest rates to account for a finance lease, then
a. The lessor will use different account titles to record the leasing transactions
b. Total expenses and revenues will be equal
c. Total expenses and revenues will be different
d. The lessee and the lessor cannot use different interest rates
3. In the case of a lease of land and building where title to the land is not transferred, the lease is generally treated as if:
a. Both land and building are finance leases
b. Both land and building are operating leases
c. Land is operating lease; building is finance lease
d. Land is finance lease; building is operating lease
4. The lessor must classify a sale-and-leaseback arrangement as a(n)
a. Operating lease or a finance lease
b. Operating lease or a sales-type lease
c. Direct financing lease or a sales-type lease
d. Direct financing lease or an operating lease
5. One incentive for entering into a sale-and-leaseback arrangement on substantially all of the market value of an asset is
a. Tax implications are favorable for the lessor, compared with other lending arrangements
b. Improvement in
c. Improvement in cash flow for the lessee
d. Entire gain appears on lessee income statement in sale year
6. Upon retirement of the bonds, any resulting gain on retirement of thye bonds should be reported in income statement when
a. Retirement price is less than the carrying
b. Retirement price is greater than the carrying value of the bonds
c. Retirement price is equal the carrying amount of the bonds
d. None of the above
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