Finance leases are agreements that are formulated as leases, but are installment purchases, i.e., sales-like, in its economic substance. O True O False
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- IFRS distinguishes between sales-type and direct financing leases for lessors. True or FalseOff-Balance Sheet Financing What is meant by the term “off-balance sheet financing”? When do leases provide such financing and what are the accounting and economic consequences of such activity?Define Finance/Sales-Type Leases.
- Which of the following is not one of the classifications for leases from the lessor’s viewpoint? Operating. Sales-type. Direct financing. Off-balance sheet.TRUE OR FALSE: in a sales type lease the net investment in the lease is credited to the appropriate asset account. If false, why?Which of the following statements is most CORRECT? Oa. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. Ob. Finance leases usually have a cancelation feature. Oc. Capital, or financial, leases generally provide for maintenance by the lessor. Od. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. Oe. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.
- Which of the following statements is characteristic of leases? a.If a lease is classified as an operating lease, the lessee records an asset on its statement of financial position. b.Lease agreements are not a popular form of financing the purchase of assets because leases require a large initial outlay of cash. c.If a lessor classifies a lease as a finance lease, the lessor records a lease liability on its statement of earnings. d.Accounting recognizes two types of leases—operating and finance.What are the differences between a direct-financing and a sales-type lease for a lessor? Why would a lessor provide direct-financing to a lessee? What types of organizations provide direct-financing leases?TRUE OR FALSE: inital direct cost are expensed under direct finance lease. If false, why?
- Why do we need to differentiate lessor accounting for direct financing lease and sales-type lease?The accounting concept that is principally used to classify leases into operating and finance is a. Prudence b. Neutrality c. Substance over form d. CompletenessWhich of the following is true about lease incentives?a. It forms part of the lease liability and right of use asset when the amount is actually receivedb. It forms part of the lease liability when the amount is still receivablec. It forms part of the lease liability and right of use asset when the amount is still receivabled. None of the choices