Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price. Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life. Statement III. Assuming the lessee depreciates the asset under the straight-line method, the pattern of the total expense that the lessee shall recognized with respect to the lease is the same every period. A. Only Statement I and II are incorrect. B. Only Statement II and III are incorrect. C. Only Statement I and III are incorrect. D. All statements are incorrect. E. All statements are correct.
Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price. Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life. Statement III. Assuming the lessee depreciates the asset under the straight-line method, the pattern of the total expense that the lessee shall recognized with respect to the lease is the same every period. A. Only Statement I and II are incorrect. B. Only Statement II and III are incorrect. C. Only Statement I and III are incorrect. D. All statements are incorrect. E. All statements are correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
1. Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price.
Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life.
Statement III. Assuming the lessee
A. Only Statement I and II are incorrect.
B. Only Statement II and III are incorrect.
C. Only Statement I and III are incorrect.
D. All statements are incorrect.
E. All statements are correct.
2. Statement I. If the pattern of the repairs cannot be established and the obligation for warranty cannot be reasonably estimated, warranty costs are recorded as expense when repairs are actually made, thus there is no accrual of liability.
Statement II. The transaction price for the sale of the product with warranty is allocated between the stand-alone selling prices of the product and warranty.
A. Both statements are true.
B. Both statements are false.
C. Statement I is true; Statement II is false.
D. Statement I is false; Statement II is true.
3. Statement I. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability.
Statement II. A lease liability includes the present value of fixed and variable lease payments plus lease incentive receivables.
Statement II. A lease liability includes the present value of fixed and variable lease payments plus lease incentive receivables.
A. Both statements are true.
B. Both statements are false.
C. Statement I is true; Statement II is false.
D. Statement I is false; Statement II is true.
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