Question 1

When a finance lease is first recorded at the beginning of the lease, the lessee typically debits:

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Question 2

On January 1, 2018, Princess Corporation leased equipment to King Company. The lease term is eight years. The first payment of $675,000 was made on January 1, 2018. The equipment cost Princess Corporation $3,600,000. The present value of the 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 2019 on this lease?

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Question 3

XYZ Company leased equipment to West Corporation under a lease agreement that qualifies as a finance lease to West but not as a result of a bargain purchase option or a title transfer. The present value of the lease payments is $600,000. The expected economic life of the asset is seven years. The lease term is five years. Using the straight-line method, what would West record as annual amortization?

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Question 4

N Corp. entered into a nine-year finance lease on a warehouse on December 31, 2018. Lease payments of $26,000, which includes maintenance services of $1,000, are due annually, beginning on December 31, 2019, and every December 31 thereafter. N does not know the interest rate implicit in the lease; N's incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should N report as recorded lease liability at December 31, 2018?

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Question 5

If the lessee expects to obtain title to leased property due to a purchase option that is reasonably certain to be exercised or the passage of title at the end of the lease term:

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Question 6

By the lessee, a lessee-guaranteed residual value at the beginning of a finance lease should be:

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Question 7

Recording a sales-type lease with a selling profit is similar to recording:

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Question 8

On January 1, 2018, Packard Corporation leased equipment to Hewlitt Company. The lease term is eight years. The first payment of $450,000 was made on January 1, 2018. Remaining payments are made on December 31 each year, beginning with December 31, 2018. The equipment cost Packard Corporation $2,400,000. The present value of the lease payments is $2,640,000. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balance reported as a liability by Hewlitt in the December 31, 2019, balance sheet?

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Question 9

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs incurred by the lessor are deferred and expensed over the lease term:

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Question 10

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs are expensed at the beginning of the lease in:

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Question 11

A noncancelable lease contains an option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain. The fair value of the asset exceeds the lessor's cost of the asset. Therefore, the lease will be accounted for by the lessor as a(n):

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Question 12

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

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Question 13

ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a finance lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2,000 at the end of 10 years. Using the straight-line method, what would Best record as annual amortization?

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Question 14

On January 1, 2018, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $240,000 for the machine and is leasing it to Zone for $34,000 per year, an amount that will return 10% to Calloway. The present value of the lease payments is $240,000. The lease payments are due each January 1, beginning in 2018. What is the appropriate interest entry on December 31, 2018?

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Question 15

Which of the following statements regarding lessee-guaranteed residual values is true for the lessee?

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Question 16

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

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Question 17

Francisco leased equipment from Julio on December 31, 2018. The lease is a 10-year lease with annual payments of $150,000 due on December 31 of each year beginning December 31, 2018. The present value of the lease payments 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, 2019?

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Question 18

The lessee's option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain sometimes is called a:

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Question 19

Durney Co. recorded a right-of-use asset of $800,000 in a ten-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset after two years will be:

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Question 20

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs incurred by the lessee are:

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Quiz 15: Leases

When a finance lease is first recorded at the beginning of the lease, the lessee typically debits:

If the lessee expects to obtain title to leased property due to a purchase option that is reasonably certain to be exercised or the passage of title at the end of the lease term:

By the lessee, a lessee-guaranteed residual value at the beginning of a finance lease should be:

Recording a sales-type lease with a selling profit is similar to recording:

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs are expensed at the beginning of the lease in:

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

Which of the following statements regarding lessee-guaranteed residual values is true for the lessee?

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

The lessee's option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain sometimes is called a:

Durney Co. recorded a right-of-use asset of $800,000 in a ten-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset after two years will be:

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs incurred by the lessee are: