Which one of the following is an indicator that a lease is an operating lease for accounting purposes? Multiple Choice The lease transfers ownership of the asset to the lessee by the end of the lease term. The lessee will probably exercise the option to purchase the leased asset. The lease term represents a minor portion of the leased asset's economic life. The residual value plus the present value of the lease payments exceeds the value of the leased asset. The lessor has no use for the asset other than to lease it to the present lessee due to the specialized nature of that asset.

Which one of the following is an indicator that a lease is an operating lease for accounting purposes? Multiple Choice The lease transfers ownership of the asset to the lessee by the end of the lease term. The lessee will probably exercise the option to purchase the leased asset. The lease term represents a minor portion of the leased asset's economic life. The residual value plus the present value of the lease payments exceeds the value of the leased asset. The lessor has no use for the asset other than to lease it to the present lessee due to the specialized nature of that asset.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...

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A lease agreement will qualify as a finance lease if one of these conditionsoccur: A. The lessee returns the leased property to the lessor at the end of the lease term.B. The lease does not have a bargain purchase option.C. The lease term is for major of the economic life of the asset.D. The present value of the minimum lease payment amounts to substantially less than the fair value of the leased asset.
Which of the following statements about purchase option is correct? The lessee includes its present value on the computation of lease liability only if it is guaranteed. None of the other choices is correct. It is ignored if the leased asset reverts back to the lessor at the end of the useful life. Its present value is added to get the lease liability if it is reasonably certain that it will be exercised.
Which of the following statements about purchase option is correct? a. None of the other choices is correct. b. Its present value is added to get the lease liability if it is reasonably certain that it will be exercised. c. it is ignored if the leased asset reverts back to the lessor at the end of the useful life. d. The lessee includes its present value on the computation of lease liability only if it is guaranteed.
9. Baa Co. enters into a lease of commercial space. The contract specifies a non-cancellable term of five years and a two-year, market-priced commencement, Baa Co. makes significant leasehold improvements with a useful life of ten years. Baa Co. determines that the economic benefits of the leasehold renewal option. Before the lease improvements can only be realized through continued of the leased property. At lease commencement, Occupancy b. 5 years c. 7 years d. 10 years a. 2 years Which of the following statements is incorrect regarding the accounting for lease liabilities? Lease liabilities are subsequently measured at amortized cost, adjusted for lease modifications and reassessments. b. Subsequent lease payments are apportioned to both the interest and the principal balance of the lease liability. c Periodic interests reflect a varying rate of interest on the remaining balance of the lease liability. d. Periodic interests reflect a constant rate of interest on the remaining…
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 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. 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…
Which of the following is not a criterion for a lease to be recorded as a finance lease?(a) There is transfer of ownership.(b) The lease is cancelable.(c) The lease term is for the major part of the economic life of the asset.(d) There is a bargain-purchase option.
Occasionally, 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?
Which of the following is a criterion for classifying a lease for a lessee as a finance lease? The lease term is for a major part of the asset’s economic life. The lease transfers ownership of the asset to the lessee at the end of the lease term. The present value of the lease payments equals or exceeds substantially the asset’s fair value. All of the above.
( How does a lessee record initial direct costs for an operating lease? (1 O They are expensed when they occur. O They are included in the lease liability and reduced as lease payments are made. O They are capitalized in a separate Initial Direct Costs account and amortized away. O They are capitalized and depreciated with the Right of Use Asset.
In computing amortization of a leased asset where there is no bargain purchase option, the lessee should subtract Question 3 options: a guaranteed residual value and depreciate over the life of the asset. no residual value and depreciate over the term of the lease. an unguaranteed residual value and depreciate over the term of the lease. an unguaranteed residual value and depreciate over the life of the asset.
Which of the following is incorrect regarding the accounting for leases by a lessee? A. A lessee recognizes the same total amount of expense on a lease whether it uses the general recognition or the recognition exemption under PFRS 16. B. The interest expense on a lease liability decreases each period C. According to PFRS 16, executory costs, such as insurance and real property taxes, are always excluded from lease payments regardless of whether these costs transfer goods or services to the leasee. D. A lessee shall allocate the total consideration in a contract to the lease components and non-lease components of the contract
Which of the following statements is correct regarding the accounting for leases? The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease The lessor depreciates the leased asset under a finance lease An entity can never be both a lessor and a lessee of a same leased asset When discounting lease payments both the lessor and the lessee use the interest rate implicit in the lease, unless the lessee cannot determine this rate