In an operating lease that is recorded by the lessor, the equal monthly rental payments should be a. Recorded as reduction of depreciation. b. Allocated between reduction in lease receivable and interest expense. c. Recorded as reduction in the lease receivable. d. Recorded as a rental income. Which statement characterizes an operating lease? a. The lessee records depreciation and interest. b. The lessee records a lease obligation. c. The lessor transfers title of the underlying asset to the lessee for the duration of the lease term. d. The lessor records depreciation and lease revenue. The classification of a lease is normally carried out a. At the end of the lease term• b. After a "cooling off" period of one year c.At the inception of the lease d. When the entity deems it to be necessary The classification of a lease as either operating or finance lease is based on a. The length of the lease. b. The transfer of the risks and rewards of ownership. C.The lease payments being at least 50% of fair value. d. The economic life of the underlying asset. All of the following situations would prima facie lead to a lease being classified as a finance lease, except a. Transfer of ownership to the lessee. b. Option to purchase at a value below the fair value of the underlying asset. c.The lease term is for a major part of the asset's life. d. The present value of the lease payments is 50% of the fair value of the asset. In case of lease of land and building, the lease payments should be split• a. According to relative fair value of the two elements. b. Based on the useful life of the two elements. c. Using the sum of digits method. d. According to method devised by the entity. Where there is a lease of land and building and the title to the land is not transferred, generally the lease is treated as if a. The land is finance lease. b. The land is finance and the building is operating. C, The land is operating and the building is finance. d. The land and building are an operating lease. The accounting concept that is principally used to classify leases into operating and finance on the part of lessor is a.Substance over form b. Prudence c. Neutrality d. Completeness Which statement is correct regarding the lease capitalization criteria? a. The lease transfers ownership to the lessor. b. The lease contains a purchase option. C. The lease term is equal to at least 75% of the economic life of the underlying asset. d. The lease payments are at least 90% of fair value of asset. Which condition would require lease capitalization? a. The lease does not transfer title to the lessee. b. There is an uncertain purchase option. C. The present value of the lease payments is significantly more than the fair value of the asset. d. The lease term is below the useful life of asset. One of the four determinative criteria for a finance lease specifies that the, lease term be equal to or greater than a. The economic life of the underlying asset. b. 90 percent of the economic life of the asset. c. 75 percent of the economic life of the asset. d. 50 percent of the economic life of the asset. One of the four determinative criteria for a finance lease is that the present value at the beginning of the lease term of the lease payments equals or exceeds a. The fair value of the underlying asse b. 90 percent of the fair value of the underlying asset C.75 percent of the fair value of the underlying asset d. 50 percent of the fair value of the underlying asset CHAPTER 13 . Gross investment in the lease is equal to a.sum of the lease payments receivable by a lessor under a finance lease and any unguaranteed residual value accruing to the lessor. b. the lease payments under a finance lease of the lessor. c. Present value of lease payments under a finance lease of the lessor and any unguaranteed residual value. d. Present value of the lease payments under a finance lease of the lessor. Net investment in a direct financing lease is equal to a.Cost of the asset b.Cost of the asset plus initial direct cost paid by the lessor C.Cost of the asset minus guaranteed residual value d. Cost of the asset plus unguaranteed residual value Which is the correct accounting treatment for a finance lease in the accounts of a lessor? a. Treat as a noncurrent asset equal to net investment in lease and recognize all finance payments in income statement. b. Treat as a receivable equal to gross amount receivable on lease and recognize finance payments in cash by reducing debt. C.Treat as a receivable equal to net investment in the lease and recognize finance payments by reducing debt and taking interest to income statement. d. Treat as a receivable equal to net investment in the lease and recognize finance payments in cash by reduction of debt. Lessors shall recognize asset held under a finance lease as a receivable at an amount equal to the a. Gross investment in the lease b. Net investment in the lease C.Gross rentals d. Residual value, whether guaranteed or unguaranteed The lease receivable in a direct financing lease is a. The gross amount of lease payments. b. The difference between the gross rentals and the fair value of the leased asset. C.The present value of lease payments. d. The cost of the asset less any accumulated depreciation The primary difference between a direct financing lease and a sales type lease is the a. Manner in which rental collections are recorded as rental income. b. Depreciation recorded each year by the lessor. C.Recognition of the manufacturer or dealer profit at the inception of the lease. d. Allocation of initial direct costs incurred by the lessor over the lease term. All of the following would be included in the lease receivable, except a. Guaranteed residual value b. Unguaranteed residual value c. A purchase option that is reasonably certain d. All would be included Under a direct financing lease, the excess of aggregate rentals over the cost of the underlying asset should be recognized as interest income of the lessor a. In increasing amounts during the term of the lease b. In constant amounts during the term of the lease C.In decreasing amounts during the term of the lease d. After the cost of the underlying asset has been fully recovered through rentals CHAPTER 14 Under a sales type lease, what is the meaning of stag investment in the lease? a.Present value of lease payments b. Absolute amount of lease payments c. Present value of lease payments plus present value of unguaranteed residual value d. Sum of absolute amount of lease payments and unguaranteed residual value Net investment in a sales type lease is equal to a. Gross investment in the lease less unearned finance income b.. Cost of the underlying asset c. The lease payments d. The lease payments less unguaranteed residual value Which statement characterizes a sales type lease? a. The lessor recognizes only interest revenue over the useful life of the asset. b. The lessor recognizes only interest revenue over the lease term. CThe lessor recognizes a dealer profit at lease inception and interest revenue over the lease term. d. The lessor recognizes a dealer profit at lease inception and interest revenue over the useful life of the asset. The profit on a finance lease transaction for lessors who are manufacturers or dealers should a.Not be recognized separately from finance income b. Be recognized in the normal way on the transaction с.Only be recognized at the end of the lease term d.Be recognized on a straight line basis over the lease term The sales revenue recognized at the commencement of the lease by a manufacturer or dealer lessor is the a. Fair value of the asset b. present value of the lease payments c. Fair value of the asset or present value of the lease payments, whichever is lower. d. Fairevalue of the asset or present value of the lease payments, whichever is higher. What is the treatment of an unguaranteed residual value in determining the cost of goods sold under a sales type lease? a. The unguaranteed residual value is ignored. b. The unguaranteed residual value is added to the cost of the underlying asset. c. The unguaranteed residual value is deducted from the cost of the underlying asset at absolute amount. d.The unguaranteed residual value is deducted from the cost of the underlying asset at present value. The excess of the fair value of underlying asset at the inception of the lease over the carrying amount shall be recognized by the dealer lessor as a. Unearned income from a sales type lease b. Unearned income from a direct financing lease c. Manufacturer profit from a sales type lease d. Manufacturer profit from a direct financing lease In a lease that is recorded as a sales type lease by the lessor, interest revenue a.Does not arise b. Shall be recognized over the lease term using the interest method c. Shall be recognized over the lease term using the straight line method d. Shall be recognized in full as revenue at the inception of the lease
