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Under ASC 842, for a lease that is recorded as a sales-type lease by the lessor, the difference between the gross investment in the lease and sum of the present values of the components of the gross investment should be recognized as income


A) In full at the lease's expiration
B) In full at the lease's inception
C) Over the period of the lease using the interest method of amortization
D) Over the period of the lease using the straight-line method of amortization

E) A) and C)
F) None of the above

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What is a leveraged lease? How do lessees and lessors record leveraged leases under ASC 842?

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A leveraged lease is a special leasing a...

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The amount to be recorded as the cost of an asset under finance lease is equal to the


A) Present value of the lease payments plus the present value of any unguaranteed residual value.
B) Carrying value of the asset on the lessor's books.
C) Present value of the lease payments.
D) Present value of the lease payments or the fair value of the asset, whichever is lower.

E) A) and C)
F) B) and C)

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Under the provisions of ASC 842, which of the following is not required in a lease modification when the lease payments are required to be remeasured?


A) Any variable lease payments that are based on a rate or index will need to be remeasured.
B) The total lease liability is remeasured
C) The remeasured lease must be subsequently recorded as an operating lease
D) The lessee is generally required to use an updated discount rate.

E) A) and D)
F) All of the above

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The primary difference between a direct-financing lease and a sales-type lease under ASC 842 is the


A) Whether the five lease recognition criteria are met
B) Amount of the depreciation recorded each year by the lessor
C) Allocation of initial direct costs by the lessor to periods benefited by the lease arrangements
D) Manner in which rental receipts are recorded as rental income

E) B) and C)
F) A) and D)

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Under ASC 842, equal monthly rental payments for a particular lease should be charged to rental expense by the lessee for which of the following? Finance lease      Short-term lease


A) Yes    No
B) Yes    Yes
C) No    No
D) No    Yes

E) A) and B)
F) A) and C)

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When does the lessee report executory costs as an expense?


A) When they are spelled out in the lease agreement.
B) Only when they are incurred by the lessee and the lease is classified as a finance lease.
C) When they are incurred by the lessee.
D) Only when they are incurred by the lessee and the lease is classified as an operating lease.

E) A) and B)
F) B) and C)

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Lessees prefer to account for their leases as short-term leases because:


A) This decreases the amount of liability reported
B) This increases their debt to total equity ratio
C) This decreases the income tax expense.
D) This increases the amount of total assets.

E) B) and D)
F) A) and C)

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Under the provisions of ASC 842 sale‐leaseback accounting is virtually eliminated as an off‐balance sheet financing proposition, because both the seller‐lessee and a buyer‐lessor will apply the provisions of FASB ASC 602 Revenue Recognition to determine whether a sale has occurred. Accordingly, which of the following is not a criterion that must be met to record a sale-leaseback a sale?


A) The transaction meets the sale guidance in the new revenue recognition standard.
B) The transaction is a leveraged lease
C) The leaseback is not a finance or a sales‐type lease
D) If there is a repurchase option, the exercise price is at the asset's fair value at the time of exercise, and alternative assets that are substantially the same as the transferred asset are readily available in the marketplace.

E) C) and D)
F) A) and C)

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How is the recorded amount of a lessee finance lease determined under ASC 842?

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The provisions of ASC 842 require a less...

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For a sales-type lease, under ASC 842, the net investment is equal to


A) The present value of the minimum lease payments plus executor costs.
B) The net investment minus unearned income.
C) Sales minus the gross profit recognized on the sale.
D) The present value of the gross lease payments.

E) A) and D)
F) A) and C)

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What is the definition of a lease under the provisions of ASU 2016-02?

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Under the provisions of ASU 2016-02, a l...

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When a lease contract does not transfer title to the lessee, there is no purchase option reasonably certain to be exercised, and the lease term is not the major part of the asset's remaining economic life


A) The lessee must classify the lease as an operating lease.
B) The amount of unguaranteed salvage value, if any, determines whether the lease is a finance lease or an operating lease.
C) The interest rate used to determine the present value of the minimum lease payments also determines whether the lease is a finance lease or an operating lease.
D) The lessee must use the greater of the lessor's rate of return or the lessee's incremental borrowing rate to determine whether the lease is a finance lease or an operating lease.

E) A) and B)
F) All of the above

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On January 1, 2020, Abreau Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Abreau's incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Abreau. Title to the equipment transfers to Abreau at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

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What does $550,000 amount represent?
The...

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What was the primary accounting issue for lessees that lead to the issuance of ASU 2016-02?


A) Recording interest expense on the lease obligation.
B) Determining whether the lease meets the 90% of fair value test.
C) Off-balance sheet financing.
D) The measurement of the leased asset under a finance lease.

E) B) and C)
F) None of the above

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In computing the present value of the minimum lease payments under ASC 842, the lessee should


A) Use its incremental borrowing rate in all cases
B) Use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee
C) Use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee
D) Use the implicit rate in all cases.

E) B) and C)
F) B) and D)

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In a finance lease, the lessee records


A) Interest expense only.
B) Amortization expense only.
C) Lease expense only.
D) Amortization expense and interest expense.

E) A) and D)
F) A) and C)

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For the lessor to recognize a lease as a sales-type lease, under ASC 842, the following must occur.


A) At least one of the finance lease criteria is met, at least one of the certainty criteria is met, and there is a manufacturer or dealer's profit.
B) At least one of the finance lease criteria is met.
C) More than one of the finance lease criteria are met, both certainty criteria are met, and there is a manufacturer or dealer's profit.
D) Only one of the finance lease criteria is met, both certainty criteria are met, and there is a manufacturer or dealer's profit.

E) All of the above
F) B) and C)

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Burdi Leasing Company agrees to lease equipment to Hanson Corporation on January 1, 2020. (Its fiscal year ends on December 31st each year) The following information relates to the lease agreement.

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1. The term of the lease is 7 years with...

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Office equipment recorded under a finance lease containing a bargain purchase option should be amortized under SFAS No. 13


A) Over the period of the lease using the interest method of amortization
B) Over the period of the lease using the straight-line method of amortization
C) In a manner consistent with the lessee's normal depreciation policy for owned assets
D) In a manner consistent with the lessee's normal depreciation policy for owned assets except that the period of amortization should be the lease term

E) B) and C)
F) A) and B)

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