Question 1

What is the outstanding balance after payment #9?

Accepted Answer

A)  $ 8,929.
B)  $13,463.
C)  $ 5,000.
D)  $ 5,537.Step 1 Interest = 12% $16,901 = $2,028 Step 2 Decrease in balance = $10,000 2,028 = $7,972Step 3 Ending balance = $16,901 7,972 = $8,929E) A) and B)
F) A) and C)

Question 2

When a capital lease is first recorded at the inception of the lease, the lessee typically debits:

Accepted Answer

A)  Leased asset.
B)  Rent expense.
C)  Lease expense.
D)  Lease receivable.E) All of the above
F) A) and B)

Question 3

Which of the following statements characterizes a leveraged lease?

Accepted Answer

A)  The lessor borrows part of the acquisition price of the leased asset from a third party lender.
B)  The lessor treats the lease as an operating lease.
C)  The lessee makes lease payments to the lessor's lender.
D)  The lessor's interest rate is always higher because the lease is leveraged.E) B) and D)
F) A) and D)

Question 4

Which of the following statements characterizes an operating lease?

Accepted Answer

A)  The lessee records depreciation and interest.
B)  The lessor records depreciation and lease revenue.
C)  The lessor transfers title at the end of the lease term.
D)  The lessee records a leased asset.E) All of the above
F) C) and D)

Question 5

One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

Accepted Answer

A)  90% of the cost of the asset.
B)  75% of the fair value of the asset.
C)  90% of the fair value of the asset.
D)  75% of the cost of the asset.E) A) and B)
F) C) and D)

Question 6

Capital leases are agreements that are formulated outwardly as leases, but are installment purchases in substance.

Accepted Answer

A) True 
 B)False

Question 7

Diablo Company leased a machine from Juniper Corporation on January 1, 2009. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year in the amount of $6,309,410. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Required:
1. Prepare the journal entry for Diablo Company at the inception of the lease.
2. Prepare the journal entry for the first lease payment.
3. Prepare the journal entry for the second lease payment.

Accepted Answer

The answer of Diablo Company leased a machine from Juniper...

Question 8

On January 1, 2009, Princess Corporation leased equipment to King Company. The lease term is 8 years. The first payment of $675,000 was made on January 1, 2009. The equipment cost Princess Corporation $3,600,000. The present value of the minimum lease payments is $3,960,000. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2010 on this lease?

Accepted Answer

A)  $261,000.
B)  $328,500.
C)  $325,350.
D)  $293,850.E) B) and C)
F) B) and D)

Question 9

What is the total effective interest over the term of the lease?

Accepted Answer

A)  $100,000.
B)  $ 36,718.
C)  $ 53,282.
D)  $ 63,282.$100,000 $63,282 = $36,718E) A) and B)
F) A) and C)

Question 10

A direct financing lease is classified in the lessor's balance sheet as:

Accepted Answer

A)  An asset.
B)  A liability.
C)  Interest revenue.
D)  A contra account to lease liability.E) None of the above
F) B) and D)

Question 11

What are the three types of expenses that a lessee experiences with a capital lease?

Accepted Answer

A)  Lease expense, executory costs, interest expense.
B)  Depreciation expense, lease expense, interest expense.
C)  Executory costs, lease expense, depreciation expense.
D)  Depreciation expense, interest expense, executory costs.E) A) and C)
F) B) and C)

Question 12

At the inception of a lease agreement, the company's debt to equity ratio and rate of return on assets are both affected whether the lease is classified as a capital lease or as an operating lease.

Accepted Answer

A) True 
 B)False

Question 13

Leasehold improvements usually are classified in a balance sheet as:

Accepted Answer

A)  Property, plant and equipment.
B)  Other long-term assets.
C)  Investments.
D)  Expenses.E) A) and C)
F) A) and B)

Question 14

To raise operating funds, Combs Corporation sold a piece of equipment on January 1, 2009, to a finance company for $600,000. Combs immediately leased the equipment back for a 10-year period. After that time ownership will transfer to Combs. The equipment has a fair value of $624,000. Its cost and its carrying value were $480,000. Its useful life is 12 years. The lease requires Combs to make payments of $80,000 to the finance company each January 1 beginning at the inception date of the lease. Combs depreciates similar assets on a straight-line basis. The appropriate interest rate is 7%. The present value of an annuity due of $1 for 10 years at 7% is 7.5
Required:
Prepare the journal entries for Combs on January 1, 2009, to record the sale-leaseback and the December 31, 2009, adjusting entries.

Accepted Answer

The answer of To raise operating funds, Combs Corporation sold...

Question 15

Francisco leased equipment from Julio on December 31, 2009. The lease is a 10-year lease with annual payments of $150,000 due on December 31 of each year. The present value of the lease (at a 10% implicit interest rate)  is $1,020,000. Francisco's incremental borrowing rate is 12% for this type of lease. The implicit rate of 10% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2010?

Accepted Answer

A)  $824,400.
B)  $807,000.
C)  $806,400.
D)  $792,000.E) A) and B)
F) A) and C)

Question 16

The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

Accepted Answer

A) True 
 B)False

Question 17

In this situation, Reagan:

Accepted Answer

A)  Is the lessee in a sales type lease.
B)  Is the lessee in a capital lease.
C)  Is the lessor in a capital lease.
D)  Is the lessor in a sales type lease.7 year lease term is > 75% of 9 year useful life.E) A) and C)
F) B) and C)

Question 18

What is the total interest over the term of the lease?

Accepted Answer

A)  $42,000.
B)  $ 8,200.
C)  $ 7,400.
D)  $ 3,460.E) None of the above
F) B) and D)

Question 19

What is the net carrying value of the lease liability in Lone Star's June 30, 2009 balance sheet? Round your answer to the nearest dollar.

Accepted Answer

A)  $15,943,154
B)  $17,533,246
C)  $21,000,000
D)  None of these is correct.E) None of the above
F) B) and C)

Question 20

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the

Accepted Answer

A)  Lessor must compensate the lessee for the excess.
B)  Lessee must pay the lessor the amount of the excess.
C)  Lessee will reduce the last year's depreciation.
D)  Lessor is not obligated to compensate the lessee for the excess.E) B) and C)
F) A) and C)

Exam 15: Leases

Correct Answer
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Leasehold improvements usually are classified in a balance sheet as:

Correct Answer
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What are the three types of expenses that a lessee experiences with a capital lease?

Correct Answer
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If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the

Correct Answer
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Capital leases are agreements that are formulated outwardly as leases, but are installment purchases in substance.

Correct Answer
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Correct Answer
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What is the total interest over the term of the lease?

Correct Answer
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Which of the following statements characterizes a leveraged lease?

Correct Answer
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The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

Correct Answer
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What is the outstanding balance after payment #9?

Correct Answer
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What is the net carrying value of the lease liability in Lone Star's June 30, 2009 balance sheet? Round your answer to the nearest dollar.

Correct Answer
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When a capital lease is first recorded at the inception of the lease, the lessee typically debits:

Correct Answer
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In this situation, Reagan:

Correct Answer
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At the inception of a lease agreement, the company's debt to equity ratio and rate of return on assets are both affected whether the lease is classified as a capital lease or as an operating lease.

Correct Answer
verified

What is the total effective interest over the term of the lease?

Correct Answer
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Correct Answer
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Correct Answer
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Which of the following statements characterizes an operating lease?

Correct Answer
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A direct financing lease is classified in the lessor's balance sheet as:

Correct Answer
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One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

Correct Answer
verified

Exam 15: Leases

Correct AnswerverifiedShow Answer

Leasehold improvements usually are classified in a balance sheet as:

Correct AnswerverifiedShow Answer

What are the three types of expenses that a lessee experiences with a capital lease?

Correct AnswerverifiedShow Answer

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the

Correct AnswerverifiedShow Answer

Capital leases are agreements that are formulated outwardly as leases, but are installment purchases in substance.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the total interest over the term of the lease?

Correct AnswerverifiedShow Answer

Which of the following statements characterizes a leveraged lease?

Correct AnswerverifiedShow Answer

The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

Correct AnswerverifiedShow Answer

What is the outstanding balance after payment #9?

Correct AnswerverifiedShow Answer

What is the net carrying value of the lease liability in Lone Star's June 30, 2009 balance sheet? Round your answer to the nearest dollar.

Correct AnswerverifiedShow Answer

When a capital lease is first recorded at the inception of the lease, the lessee typically debits:

Correct AnswerverifiedShow Answer

In this situation, Reagan:

Correct AnswerverifiedShow Answer

At the inception of a lease agreement, the company's debt to equity ratio and rate of return on assets are both affected whether the lease is classified as a capital lease or as an operating lease.

Correct AnswerverifiedShow Answer

What is the total effective interest over the term of the lease?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements characterizes an operating lease?

Correct AnswerverifiedShow Answer

A direct financing lease is classified in the lessor's balance sheet as:

Correct AnswerverifiedShow Answer

One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

Correct AnswerverifiedShow Answer

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