Advanced Accounting (Looseleaf)
12th Edition
ISBN: 9780077632595
Author: Hoyle
Publisher: MCG
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Chapter 2, Problem 6P
An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as
a. An intangible asset under the contractual-legal criterion.
b. A part of
c. An intangible asset under the separability criterion.
d. A building.
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Explain how an entity would initially and subsequently measure its right-of-use asset and lease liability if the leased asset is classified as investment property under the fair value model?
Assuming the fair value of the asset is not given at the end of the period, how will it be best computed? Compare and contrast the lease-related expenses if the entity uses the cost model and fair value model for its right-of-use asset.
When a sale-leaseback transaction occurs, if the leaseback is considered to be an operating lease, and the lease payments and sales price are at fair value, any gain on the sale a. Is amortized over the lease term by a company using IFRS. b. Is recognized immediately by a company using IFRS. c. Is amortized over the lease term by a company using either U.S. GAAP or IFRS. d. Is not recorded by a company using IFRS.
For a lease that transfers ownership of the property to the lessee by the end of the lease term, the lessee should:
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b.amortize the right-of-use asset over the lease term in a manner consistent with the lessee's normal depreciation policy for owned assets
c.record each lease payment as lease expense
d.combine interest expense and amortization expense and report as a single lease expense
Chapter 2 Solutions
Advanced Accounting (Looseleaf)
Ch. 2 - Prob. 1QCh. 2 - Prob. 2QCh. 2 - What does the term consolidated financial...Ch. 2 - Within the consolidation process, what is the...Ch. 2 - Prob. 5QCh. 2 - Prob. 6QCh. 2 - Prob. 7QCh. 2 - Prob. 8QCh. 2 - Prob. 9QCh. 2 - Prob. 10Q
Ch. 2 - Prob. 11QCh. 2 - 1. Which of the following does not represent a...Ch. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - An acquired entity has a long-term operating lease...Ch. 2 - When does gain recognition accompany a business...Ch. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - On June 1, Cline Co. paid 800,000 cash for all of...Ch. 2 - On May 1, Donovan Company reported the following...Ch. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15PCh. 2 - Prob. 16PCh. 2 - On its acquisition-date consolidated balance...Ch. 2 - On its acquisition-date consolidated balance...Ch. 2 - Prob. 19PCh. 2 - The following book and fair values were available...Ch. 2 - Prob. 21PCh. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - Prob. 26PCh. 2 - Prob. 27PCh. 2 - Prob. 28PCh. 2 - Prob. 29PCh. 2 - SafeData Corporation has the following account...Ch. 2 - Prob. 31PCh. 2 - Prob. 32PCh. 2 - Prob. 33APCh. 2 - On February 1, Piscina Corporation completed a...Ch. 2 - Prob. 1DYSCh. 2 - Prob. 2DYSCh. 2 - On August 27, 2015, Celgene Corporation acquired...
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- Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.arrow_forwardFor a(n) ________ lease, a lessor recognizes revenue on the sale and records the asset, ________ lease. It also removes the leased asset from its accounts and records the ________. Group of answer choices sales-type; net investment in lease–sales-type; cost of goods sold finance; gross investment in lease–sales-type; cost of goods sold operating; net investment in lease–sales-type; cost of goods sold sales-type; finance; revenuearrow_forwardWhich one of these statements is correct concerning leasing arrangements? I. The debt financing used to purchase the leased asset from the original manufacturer is debt of the lessee. II. Renewal Options are usually common in operating leases II. The lessee uses the asset but does not own the asset. IV. The manufacturer sells the asset to the lessee in a direct lease arrangement. V. The lessee may issue stock to purchase the leased asset at any time. Select one: O a. III only O b. I and V only O. Il only O d. I, III and IV only Oe. Il and II onlyarrow_forward
- A sale and leaseback arrangement does which one of the following? Select one: O a. allows the lessor to continue using the leased asset without any interruptions O b. provides the lessee with an immediate cash inflow equivalent to the initial lease payment O c. allows the lessee to generate cash while continuing to have use of the asset O d. provides the lessor with an immediate cash inflow equivalent to the market value of the leased asset O e. allows the lessee to retain title of the assetarrow_forwardGenerally accepted accounting principles require that certain leaseagreements be accounted for as purchases. The theoretical basis for thistreatment is that a lease of this type A. Effectively conveys all of the benefits and risks incident to the ownership of property B. Is an example of form over substance C. Provides the use of the leased asset to the lessee for a limited period of time D. Must be recorded in accordance with the concept of cause and effectarrow_forwardOccasionally, a lease agreement includes a guarantee by the lessee that the lessor will recover a specified residual value when custody of the asset reverts back to the lessor at the end of the lease term. Under what circumstance can the guaranteed residual value influence the amounts recorded by the lessee and lessor? In that circumstance, how are the amounts affected?arrow_forward
- The residual value is the estimated fair value of theleased property at the end of the lease term.(a) Of what significance is (1) an unguaranteed and (2) aguaranteed residual value in the lessee’s accountingfor a capitalized-lease transaction?(b) Of what significance is (1) an unguaranteed and (2) aguaranteed residual value in the lessor’s accountingfor a direct-financing lease transaction?arrow_forward1. In a sale and leaseback transaction, what is used by the buyer-lessor to depreciate the cost of the leased asset? A. Lease term B. Total Useful life C. Excess of useful life over the lease term D. Remaining useful life 2. Which of the following scenarios regarding a sale and leaseback transaction would result to a loss to the seller-lessee? A. Fair Value < Carrying Amount B. Sale Price < Fair Value C.Sale Price > Fair Value D.Fair Value > Carrying Amount 3. When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? A. Sale Price > Fair Value B. Fair Value < Carrying Amount C. Sale Price < Fair Value D. Fair Value > Carrying Amountarrow_forwardThe following are some of the characteristics of an asset available for lease. (Click the icon to view the lease characteristics.) Required a. Determine the amount of lease payment that the lessor would require to lease the asset. b. Compute the lessor's net investment in the lease at initial recognition. c. Compute the value of the lessee's ROU asset at initial recognition. d. Compute the lessee's lease liability at initial recognition. Requirement a. Determine the amount of lease payment that the lessor would require to lease the asset. Begin by calculating the present value of the residual value and the value to be recovered by the lessor from the annual lease payments. (Use a financial calculator for all present value computations. Enter your final answers as positive amounts rounded to the nearest whole dollar.) Present value of guaranteed residual value Value to be recovered by annual lease payments Determine the amount of lease payment that the lessor would require to lease the…arrow_forward
- Which of the following statements is/are not true? Interest expense on the lease liability will increase the carrying amount of the liability. A lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date, using the lessee's incremental borrowing rate. Right-of-use asset cost will include an estimates cost to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. Group of answer choices Only statement 2. All statements are true. Only statements 2 and 3. None of the statements are true.arrow_forwardExplain the major merits or benefits that accrue to the lessee by acquiring a tangible asset under a leasing agreementarrow_forwardThe amount of gain (loss) on sale and leaseback transaction is: A. The difference of fair value and carrying of the underlying asset. B. The difference of the fair value of rights retained by the lessee and the carrying value of right-of use asset. C. The difference of the fair value of rights retained by the lessee and the carrying value of rights transferred to the lessor. D. The difference of the fair value of rights transferred to the lessor and carrying value of rights transferred to the lessor.arrow_forward
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