Question :
71. U.S. GAAP specifies criteria for a capital lease. Which of : 1230319
71. 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.
72. 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: twoB. three; threeC. four; five D. five; five E. six; six
73. Third-World Manufacturing Company signed a 3-year contract for the use of certain manufacturing equipment with an estimated life of three years. Third-World Manufacturing Company cannot cancel the contract. What entry is made to record the contract? A. Rent Expense CashB. Manufacturing Equipment CashC. Leased Asset–Manufacturing Equipment Lease LiabilityD. Lease Liability Leased Asset–Manufacturing EquipmentE. Rent Expense Leased Asset–Manufacturing Equipment
74. Which of the following is not one of the conditions of a capital lease? A. transfer of ownership to the lessor at the end of the lease termB. transfer of ownership to the lessee appears likely because of a “bargain” purchase optionC. lease extends for at least 75 percent of the asset’s lifeD. 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 leaseE. all of the above
75. Which of the following is not one of the conditions of a capital lease? A. transfer of ownership to the lessee at the end of the lease termB. transfer of ownership to the lessee appears likely because of a “bargain” purchase optionC. lease extends for at least 70 percent of the asset’s lifeD. 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 leaseE. all of the above
76. When a capital lease for equipment is signed, the lessee records an asset called A. lease obligationB. present value of capital lease paymentsC. equipmentD. equipment leasehold E. future value of capital lease payments
77. 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.
78. Which of the following is true of capital lease transactions? A. capital leases may only be recorded if the transaction involves a third partyB. capital leases always have a bargain purchase optionC. the lease is valued at the future value of the benefits providedD. the accounting treatment adopted is generally the same for lessors and lessees.E. all of the above
79. (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 predictableE. The lease term is at least 60% of the remaining life of the asset at the beginning of the lease.
80. Plantation RestaurantOn January 1, Year 7, Plantation Restaurant is planning to enter as the lessee into the two lease agreements described below. Each lease is noncancelable, and Plantation does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.
Lessor
Hadaway Inc.
Cutter Electronics
Type of property
Oven
Computer
Yearly rental (not including executory costs)
$15,000
$4,000
Lease term
10 years
3 years
Economic life
15 years
5 years
Purchase option
None
$3,000
Renewal option
None
None
Fair market value at inception of lease
$125,000
$10,200
Unguaranteed residual value
None
$2,000
Lessee’s incremental borrowing rate
10%
10%
Executory costs paid by
Lessee
Lessor
Annual executory costs
$800
$500
Present value factor at 10% (of an annuity due)
6.76
2.74
(CMA adapted, Dec 93 #27) Refer to the Plantation Restaurant example. Plantation Restaurant should treat the lease agreement with Hadaway Inc. as a(n) A. capital lease with an initial asset value of $101,400B. operating lease, charging $14,200 in rental expense and $800 in executory costs to annual operationsC. operating lease, charging the present value of the yearly rental expense to annual operationsD. operating lease, charging $15,000 in rental expense and $800 in executory costs to annual operationsE. capital lease with an initial asset value of $100,000
