61. U.S. GAAP and IFRS provide for which of the following methods of accounting for long-term leases?
A. lease option method and direct lease method.
B. direct lease method and indirect lease method.
C. lease option method and indirect lease method.
D. operating lease method and capital or financing lease method
E. primary lease method and secondary lease method.
62. The operating lease method is appropriate when the
A. lessee enjoys most of the rewards and bears most of the risks of ownership.
B. lessor enjoys most of the rewards and bears most of the risks of ownership.
C. lessor enjoys most of the rewards, only.
D. lessor bears most of the risks of ownership, only.
E. lessee enjoys most of the rewards, only.
63. The capital lease method is appropriate when the lessee enjoys most of the _____ and bears most of the _____ of ownership.
A. risks; rewards
B. rewards; risks
C. cash receipts; cash disbursements
D. cash disbursements; cash receipts
E. cash receipts; risks
64. The operating lease method is appropriate when the lessor enjoys most of the _____ and bears most of the _____ of ownership.
A. risks; rewards
B. rewards; risks
C. cash receipts; cash disbursements
D. cash disbursements; cash receipts
E. cash receipts; risks
65. Upon entering in the lease agreement, capital leases require that the lessee records
A. the leased asset, only.
B. the leased asset and the lease liability.
C. the lease liability, only
D. nothing because the lessor owns the property.
E. the present value of future cash flows as an asset, only.
66. Upon entering in the lease agreement, operating leases require that the lessee records
A. the leased asset, only.
B. the leased asset and the lease liability.
C. the lease liability, only
D. nothing because the lessor owns the property.
E. the present value of future cash flows as an asset, only.
67. The operating lease method classifies all of the lease payment each period as _____.
A. an investment use of cash on the statement of cash flows.
B. an operating use of cash on the statement of cash flows.
C. a financing use of cash on the statement of cash flows.
D. a cash expenditure.
E. none of the above
68. The capital lease method classifies the portion of the lease payment related to interest expense as an ________use of cash and the portion related to a reduction in the lease liability as a _________ use of cash.
A. operating; investing
B. operating; financing
C. financing; investing
D. investing; financing
E. financing; operating
69. Why do lessees tend to prefer the operating lease method to the capital lease method?
A. The capital lease method results in larger long-term debt and debt-equity ratios during the life of a lease than the operating lease method.
B. A larger debt ratio makes a firm appear more risky.
C. The operating lease method recognizes expense more slowly over the life of the lease than the capital lease method.
D. all of the above
E. none of the above
70. U.S. GAAP specifies criteria for a capital lease. Which of the following is not one of the criteria?
A. The lease transfers ownership of the leased asset to the lessee at the end of the lease term.
B. Transfer of ownership at the end of the lease term seems likely because the lessee has a bargain purchase option.
C. The lease extends for at least 75% of the asset’s expected useful life.
D. The lease extends for at least 50% of the asset’s expected useful life.
E. The present value of the contractual minimum lease payments equals or exceeds 90% of the fair value of the asset at the time the lessee signs the lease using a discount rate appropriate for the creditworthiness of the lessee.
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