Operating leases often have terms that include a. much longer lease periods than for most financial leases. b. restrictions on how much the leased property can be used. c. maintenance of the equipment by the lessor. d. very high penalties if the lease is canceled. e. full amortization over the life of the lease.

Operating leases often have terms that include a. much longer lease periods than for most financial leases. b. restrictions on how much the leased property can be used. c. maintenance of the equipment by the lessor. d. very high penalties if the lease is canceled. e. full amortization over the life of the lease.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...

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A lease agreement will qualify as a finance lease if one of these conditionsoccur: A. The lessee returns the leased property to the lessor at the end of the lease term.B. The lease does not have a bargain purchase option.C. The lease term is for major of the economic life of the asset.D. The present value of the minimum lease payment amounts to substantially less than the fair value of the leased asset.
Which one of the following would normally lead to a lease being classified as an operating lease? a. The lease term is for a period of more than half of the expected economic life of the underlying asset. b. At the inception date of the lease agreement, the present value of the total lease payments is for an amount substantially less than the fair value of the underlying asset. c. The lease is cancellable, and all losses associated with the cancellation will be incurred by the lessee. d. It is reasonably certain at the inception date that the lessee will exercise an option to purchase the underlying asset at the end of the lease term for a price substantially lower than its expected fair value.
Which of the following are normal characteristics of a financial lease? I. Maintenance of the leased asset is the responsibility of the lessee. II. The lease is generally cancellable by the lessee prior to the expiration date. III. Financial leases are generally fully amortized. IV. The lessee usually has the right to renew the lease at the end of the initial lease period. Select one: O a. I, II, III, and IV O b. I, II, and IV only O c. II, II, and IV only O d. I and Il only Oe. I and II only
In relation to a short-term operating lease, which of the following statements is NOT correct? a. The lessee will be responsible for repairs and maintenance of the leased asset b. The lease period will not cover the leased asset’s useful economic life c. The asset and lease obligation will not be recorded in the statement of financial position d. An operating lease is a rental agreement Clear my choice
A lessor with a sales-type lease involving an unguaranteed residual value at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? The sales price less the present value of the residual value. The lease payments plus the unguaranteed residual value. The cost of the asset to the lessor, less the present value of any unguaranteed residual value. The present value of the lease payments plus the present value of the unguaranteed residual value.
A lease is classified as financial because it meets the criteria that the term of the lease is more than 75% of the life of the leased asset. For how long should that asset be amortized? A) The term of the lease B) An average of the useful life and term of the lease C) It is not amortized because it is not the owner D) The useful life.
For a finance lease, the lease obligation of the lessee would be reduced periodically by a. the lease payment less the portion allocable to interest. b. the lease payment plus the interest expense for the period. c. the lease payment less depreciation expense if the lessee records depreciation. d. the lease payment less the amortization if the initial lease liability is more than the face amount, or plus the amortization if the initial lease liability is less than the face amount. e. none of the above.
Under IFRS: lessees and lessors recognize right-of-use assets. lessees always use the operating method. lessees always recognize a right-of-use asset and lease liability for leases with terms less than one year. lessors do not distinguish between sales-type and direct financing lease
We classify a lease as a finance lease if: Multiple Choice the present value of lease payments is less than the asset's book value. the present value of lease payments is less than the asset's fair value. the lessee obtains control of the use of the asset. the usual risks and rewards are retained by the lessor.
Which one of the following is an indicator that a lease is an operating lease for accounting purposes? Multiple Choice The lease transfers ownership of the asset to the lessee by the end of the lease term. The lessee will probably exercise the option to purchase the leased asset. The lease term represents a minor portion of the leased asset's economic life. The residual value plus the present value of the lease payments exceeds the value of the leased asset. The lessor has no use for the asset other than to lease it to the present lessee due to the specialized nature of that asset.
3. For a finance lease, the lease obligation of the lessee would be reduced periodically by a. the lease payment less the portion allocable to interest. b. the lease payment plus the interest expense for the period. c. the lease payment less depreciation expense if the lessee records depreciation. d. the lease payment less the amortization if the initial lease liability is more than the face amount, or plus the amortization if the initial lease liability is less than the face amount. e. none of the above. 4. Initial direct costs incurred by the lessor in connection with specific leasing activities as in negotiating and securing leasing arrangements in a direct finance lease would * a. result to an increase of the implicit interest rate. b. result to a decrease of the implicit interest rate. c. result to either an increase or a decrease of the implicit interest rate depending on the given facts. d. be ignored if the lease qualifies as a dealer's lease.
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.