13E: Wrong Answers Flashcards

0
Q

Leasehold improvements are capitalized and amortized over…

A

The shorter of the remaining life of the lease and the useful
Life of improvements

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1
Q

Accrued rent receivable equation

A

Accrued rent receivable = rent revenue - cash collections

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2
Q

When the residual value is guaranteed by a third party, the lessee’s minimum lease payments include only…

A

The rentals

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3
Q

If interest payments are made on January 1st of each year on a capital lease, can the principal amount be affected on October 1st by accrued interest?

A

No

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4
Q

When calculating the initial lease liability, annual Executory costs are…3

A

1 not an expense or liability until incurred

2 excluded from minimum lease payments

3 not reflected in initial lease liability

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5
Q

In a six year capital lost starting December 31, year 1:

Does the first payment made on December 31, yr. 1 include interest expense? Does it include a lease liability?

A

Includes lease liability, but first payment doesn’t include interest
Expense

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6
Q

If the lease term is 5 years and the useful life is 8 years, what amount will be used to calculate depreciation if a bargain purchase option is exercised?

A

8 years

Because intend to use it over its useful life

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7
Q

Note disclosure: Aggregate amount for lease term

A

Is total remaining lease payments in the agreement

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8
Q

Note disclosure: amount for appropriate required period

A

Total lease payments over next 5 years

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9
Q

When a bargain purchase option exists, at the end of the lease the balance in the lease payable column should equal…

A

The bargain purchase option price

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10
Q

Failure to include the present value of the bargain purchase option price in the beginning present value of the lease would result in…

A

An ending balance in the lease payable column of zero

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11
Q

Sale leaseback arrangements are treated as though…

A

2 transactions were a single financing transaction if the lease
Qualifies as a capital lease

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12
Q

In a sale leaseback arrangement any gIn or loss is deferred and amortized over the life of the lease term if…

A

possession reverts to lessor

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13
Q

In a sale leaseback arrangement any gIn or loss is deferred and amortized over the economic life if…

A

Ownership transfers to the lessee

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14
Q

In a sale leaseback transaction, the seller lessee has retained the property, the gain on sale should be…

A

Deferred for both capital and operating leases

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15
Q

An example of an operating lease in which substantially all of the remaining use of the leased asset is retained by the lessee occurs when the lease term begins…

A

Within the last 25% of the asset’s original useful life

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16
Q

Deferred gain from sale leaseback transaction acts as…

A

Asset valuation allowance

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17
Q

Deferred gain acts as an asset valuation allowance resulting in net amount shown for leased asset being equal to…

A

Same carrying value as if sale and leaseback transaction had

Not occurred

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18
Q

A modification to a capital lease that changes the classification of the lease to an operating lease requires the transaction be accounted for as…

A

A sales leaseback transaction, defer gain and recognize it over
Life of operating lease

19
Q

How do you record the journal entry for a capital lease payment made by the lessee?

A

Capital lease liability. Xxx

Cash. Xxx

20
Q

How do you record the journal entry of the lessee for expenses associated with a capital lease?

A

Depreciation exp. Xxx
Accumulated depr. Xxx

Interest expense. Xxx
Capital lease liability. Xxx

21
Q

Sales type lease

A
Sales revenue (the present value of the minimum lease payments)
Less the carrying amount of the leased asset 

is reported on the Lessor’s income statement at the inception of the lease

22
Q

Direct financing lease

A

Interest revenue is the only item reported on the income statement
Over the lease term

23
Q

Operating lease- lessee

A

Rental payments are recognized on a straight line basis

even though the lease calls for payments that increase over the
term of the lease

24
Q

Operating lease- lessor

A

Initial direct costs should be treated as an asset and amortized
Over the life of the lease on a straight line basis

25
Q

Unearned interest revenue

A

The difference between the fair value of the asset leased and the
Total payments to be received over the lease term

26
Q

Residual value

A

Included in the lessor’s gross investment, whether guaranteed
Or Unguaranteed

27
Q

Capital lease

A

Depreciation expense related to the leased asset is reported
on the lessee’s income statement over the lease term

28
Q

Implicit rate

A

Produces a desired rate of return which causes the aggregate
Present value of the minimum lease payments to be equal to
The fair value of the leased property

29
Q

Interest method

A

Produces a constant periodic rate of return on the net investment

30
Q

Present value of the minimum lease payments

A

Should be recorded as both an asset and a liability by the lessee
When the lease contains a bargain purchase option

31
Q

Bargain purchase option

A

Lessee’s right to purchase leased property for an amount

substantially lower than the expected FV at exercise date

32
Q

Sale leaseback

A

The substance of this transaction is that it consists of two separate
And distinct transactions

33
Q

Annuity due

A

A lease agreement which requires the annual payments to be

made at the beginning of each period

34
Q

Initial direct costs

A

Costs, such as appraisal fees, incurred by the lessor in setting up
The lease agreement

35
Q

Current lease obligation

A

The principal portion of the lease liability which must be paid
within the next operating cycle

36
Q

As a capital lease progresses, the interest expense…

2) the carrying amount of the lease…

A

Decreases for the lessee

2) decreases for the lessee

37
Q

Depreciation expense is calculated using (in the numerator)…

A

The present value of the minimum lease payments

38
Q

When a bargain purchase option exists, depreciation is calculated using…

A

The asset’s useful life

39
Q

If a capital lease is modified in such a way that it qualifies as an operating lease, it should be treated as…

A

A sales-leaseback transaction

40
Q

If a seller lessee retains substantially all rights to use the property in a sales leaseback transaction, the gain on sale is…

A

Deferred by the seller lessee

41
Q

Unguaranteed residual is considered part of…

A

The lessor’s net investment in lease unless there’s a transfer of
Title or bargain purchase option

42
Q

Unguaranteed residual, is it part of the minimum lease payment for the lessee?

A

Not part of the minimum lease payment it is ignored

43
Q

Do minimum lease payments include penalties?

Example

A

Yes

Ex. Failure to renew

44
Q

Initial direct costs, how are they treated by the lessor?

A

Should be capitalized and amortized straight line over the life
Of the lease

45
Q

Free or uneven lease payments received by the lessor should be recognized…

A

As revenue on a straight line basis and prorated over the life
Of the lease