Question : 11.What the primary accounting issue for lessees? a.Recording interest expense the : 1242706

11.What is the primary accounting issue for lessees?

a.Recording interest expense on the lease obligation.

b.Determining whether the lease meets the 90% of fair value test.

c.Off-balance sheet financing.

d.The measurement of the leased asset under a capital lease.

12.What is the primary accounting issue for lessors?

a.Off-balance sheet financing.

b.Revenue recognition and expense allocation over the lease term.

c.Treating the lease in the same manner as the lessee does.

d.Determining whether the lease is a sales-type lease or a direct financing lease.

13.For the lessor to recognize a lease as a sales-type lease, the following must occur.

a.At least one of the capital lease criteria is met, at least one of the certainty criteria is met, and there is a manufacturer or dealer’s profit.

b.At least one of the capital lease criteria is met, both certainty criteria are met, and there is a manufacturer or dealer’s profit.

c.More than one of the capital lease criteria are met, both certainty criteria are met, and there is a manufacturer or dealer’s profit.

d.Only one of the capital lease criteria is met, both certainty criteria are met, and there is a manufacturer or dealer’s profit.

14.A net operating loss carryover that occurs in a company’s second year of operations

a.May cause a company to report a tax benefit in the current period income statement.

b.Has no effect on income tax expense of the current period because no taxes are paid.

c.Causes a company to report a deferred income tax liability for taxes that are not paid currently.

d.Results in future taxable amounts.

15.For a sales-type lease, the net investment is equal to

a.The present value of the minimum lease payments plus executor costs.

b.The net investment minus unearned income.

c.Sales minus the gross profit recognized on the sale.

d.The present value of the gross investment.

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.

a.The lessee must classify the lease as an operating lease.

b.The amount of unguaranteed salvage value, if any, determines whether the lease is a capital lease or an operating lease.

c.The interest rate used to determine the present value of the minimum lease payments also determines whether the lease is a capital lease or an operating lease.

d.The lessee must use the greater of the lessor’s rate of return or the lessee’s incremental borrowing rate to determine whether the lease is a capital lease or an operating lease.

17.When does the lessee report executory costs as an expense?

a.When they are spelled out in the lease agreement.

b.Only when they are incurred by the lessee and the lease is classified as a capital lease.

c.When they are incurred by the lessee.

d.Only when they are incurred by the lessee and the lease is classified as an operating lease.

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?

a.When the lease is classified as a sales-type lease.

b.When the lease is classified as a direct financing lease.

c.When the lease is classified as an operating lease.

d.Initial direct costs are always expensed during the first year of the lease term.

19.When a sale and leaseback occurs

a.A gain or loss on the sale of the leased asset is deferred and amortized over the lease term .

b.A gain on sale of the leased asset is deferred and amortized over the lease term.

c.Whether a gain or loss on sale of the leased asset is deferred and amortized over the lease term depends on whether the lease is classified as a capital lease or an operating lease.

d.Both gains and losses are recognized in earnings when the asset is sold.

20.Which of the following would indicate that the lessee should not classify a lease as a capital lease?

a.The fair value of the leased asset is $100,000 and the present value of the minimum lease payments is $95,000.

b.The lease provides for no unguaranteed salvage value.

c.The lessee has the option to purchase the leased asset in 4 years for $2 when the asset’s salvage value is expected to be $20,000.

d.The asset’s useful life is 20 years, a 4 year lease occurs when the asset is 26 years old.