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Chapter 27
Leasing
Multiple Choice Questions
1.
Ron leases a car from Uptown Motors and pays $225 a month as a lease
payment. Which one of the following terms applies to Ron?
2.
The party who owns a leased asset is called the:
3.
Kate is leasing some equipment from Ajax Leasing for a period of one-year.
Ajax pays the maintenance, taxes, and insurance costs for this equipment.
The life of the equipment is 7 years. Which type of lease does Kate have?
4.
Alfredo has a non-cancelable, five year lease on an industrial-grade sewing
machine for stitching upholstery. For accounting purposes, this is
considered to be a capital lease. The life of the sewing machine is five
years. Alfredo must pay all taxes and insurances related to this lease. Which
type of lease does Alfredo have on this sewing machine?
5.
A financial lease in which the lessor is the owner for tax purposes is called
a(n) _____ lease.
6.
Heavy Equipment Rentals borrows money on a nonrecourse basis from The
Financial Group to fund its purchases of construction equipment such as
backhoes, graders, earth movers, etc. This equipment is then leased to
contractors. The leases are classified as tax-oriented leases. Which one of
the following terms best describes these lease of construction equipment?
7.
Brentwood Industries is selling its tool and die equipment to Upward
Financial and then leasing that equipment from Upward for a period of ten
years, which is the useful remaining life of the equipment. Which type of
lease arrangement is this?
8.
You are comparing a lease to a purchase. The NPV associated with this
analysis is referred to as the:
9.
Which one of the following statements is correct concerning the lease
versus buy decision?
10.
In a direct lease, the lessor:
I. is the end user of the asset.
II. rents the leased asset from the manufacturer.
III. owns the asset.
IV. is generally an independent leasing company.
11.
An operating lease has which of the following characteristics?
I. lessee has responsibility for the maintenance and insurance
II. lease payments cover the full cost of the asset
III. economic life of the asset exceeds the lease term
IV. lessee can cancel the lease prior to the expiration date
12.
A financial lease:
13.
A leveraged lease is a:
14.
Which of the following apply to the lessee of a sale and leaseback
arrangement?
I. may have option to purchase asset at end of lease term
II. receives cash from the sale of the asset
III. maintains ownership rights
IV. uses the asset
15.
A firm that is very cyclical in nature and requires extra equipment only
during its peak periods should consider leasing that equipment using a(n)
_____ lease.
16.
A financial lease:
I. is generally a fully amortized lease.
II. usually requires the lessee to insure the asset.
III. is generally cancelable without penalty if the lessee provides 30 days
advance notice.
IV. is referred to as a capital lease by accountants.
17.
If a firm does not expect to owe taxes for a few years and needs some
equipment, the firm should:
18.
If a lessor borrows money on a nonrecourse basis to purchase an asset that
will be leased to another party, then:
19.
If a firm enters a sale and leaseback agreement, then:
I. the lessee will benefit from an immediate cash inflow.
II. both the lessor and the lessee may benefit if the lessor can benefit more
from the tax benefits of ownership than can the lessee.
III. the lease automatically becomes a nonrecourse lease.
IV. the lessee forfeits the right to repurchase the asset at a later date.
20.
An operating lease:
21.
Which one of the following will classify a lease as a capital lease for
accounting purposes?
