Chapter 13
1. Under the capital method of accounting for leases the excess of aggregate rentals over the cost of
leased property should be recognized as revenue of the lessor
2. When measuring the present value of future rentals to be capitalized as part of the purchase price
in a lease that is be accounted for as a purchase, identifiable payments to cover taxes, insurance,
and maintenance should be
3. Equal monthly rental payments for a particular lease should be charged to rental expense by the
lessee for which of the following?
Capital lease Operating lease
4. In 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
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5. For a six-year capital lease, the portion of the minimum lease payment in the third year applicable
to the reduction of the obligation should be
6. Based solely upon the following sets of circumstances, indicate below which set gives rise to a
sales type or direct financing lease of a lessor:
Transfers Contains
Ownership bargain
By end of purchase
Lease? Provision?
7. Generally accepted accounting principles require that certain lease agreements be accounted for
as purchases. The theoretical basis for this treatment is that a lease of this type
8. The appropriate valuation of an operating lease on the statement of financial position of a lessee
is
9. A six-year-capital lease entered into on December 31, 2012, specified equal minimum annual
lease payments due on December 31, 2014. Minimum payment applicable to which of the
following increased over the corresponding December 31, 2014, minimum payment?
10. Office equipment recorded under a capital lease containing a bargain purchase option should be
amortized
11. What is the primary accounting issue for lessees?
12. What is the primary accounting issue for lessors?
13. For the lessor to recognize a lease as a sales-type lease, the following must occur.
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14. A net operating loss carryover that occurs in a company’s second year of operations
15. For a sales-type lease, the net investment is equal to
16. When a lease contract does not transfer title to the lessee, there is no bargain purchase option, and
the lease term is not at least 75 percent of the estimated useful life of the leased asset.
17. When does the lessee report executory costs as an expense?
18. If the lessor incurs initial direct cost to bring about the lease, when are those costs expensed in
total during the first year of the lease term?
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19. When a sale and leaseback occurs
20. Which of the following would indicate that the lessee should not classify a lease as a capital
lease?
Essay
1. List four advantages of leasing over the purchase of property for use by a business.
2. Define the following:
3. List the four criteria for recording a lease transaction as a capital lease.
4. How is the recorded amount of a lessee capital lease determined?
5. What is the difference between a sales-type and a direct financing type of capital lease?
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6. What is a leveraged lease? How do lessees and lessors record leveraged leases?