Question : 101. Why do lessees tend to prefer the operating lease method : 1245674

101. 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

102. 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.

103. 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 present value of the contractual minimum lease payments equals or exceeds 75% 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.
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.

104. Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding _____ years and for all years after _____ years in the aggregate. 
A. two: two
B. three; three
C. four; five
D. five; five
E. six; six

105. Which of the following is/are not one of the conditions of a capital lease? 
A. transfer of ownership to the lessor at the end of the lease term
B. transfer of ownership to the lessee appears likely because of a “bargain” purchase option
C. lease extends for at least 75 percent of the asset’s life
D. present value of the minimum contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease
E. all of the above

106. Which of the following is/are not one of the conditions of a capital lease? 
A. transfer of ownership to the lessee at the end of the lease term
B. transfer of ownership to the lessee appears likely because of a “bargain” purchase option
C. lease extends for at least 70 percent of the asset’s life
D. present value of the minimum contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease
E. all of the above

107. When a capital lease for equipment is signed, the lessee records an asset called 
A. a lease obligation.
B. the present value of capital lease payments.
C. equipment.
D. an equipment leasehold.
E. the future value of capital lease payments.

108. When a capital lease for equipment is signed, the lessee records a liability called 
A. lease liability.
B. future value of capital lease payments.
C. equipment.
D. equipment leasehold.
E. present value of capital lease payments.

109. Which of the following is/are true of capital lease transactions? 
A. Capital leases may only be recorded if the transaction involves a third party.
B. Capital leases always have a bargain purchase option.
C. The lease is valued at the future value of the benefits provided.
D. The accounting treatment adopted is generally the same for lessors and lessees.
E. All of the above.

110. (CMA adapted, Dec 92 #10) There are many similarities between lessee and lessor accounting for the capitalization of leases. Which one of the following is a criterion for the capitalization of a lease by a lessee? 
A. The lease transfers ownership of the property to the lessee by the end of the lease term.
B. The lease term is at least 90% of the remaining life of the asset at the beginning of the lease.
C. The present value of the minimum lease payments is 75% or more of the fair market value of the leased asset.
D. Future costs are reasonably predictable.
E. The lease term is at least 60% of the remaining life of the asset at the beginning of the lease.