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Exam 7: Financial Assets: Cash and Receivables

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Question 61

Multiple Choice

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Amanda Company leased an office building for six years for an annual rent of $170,000.The lessor agreed to forgive the first year of the lease (i.e.payments would not begin until the second year) .The entry in the second year would include a debit to:

A) rent expense-$28,333.
B) rent expense-$141,667.
C) rent expense-$170,000.
D) rent expense-some other amount.

E) None of the above
F) A) and C)

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Question 62

Multiple Choice

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The depreciation period used by the lessee for a depreciable leased asset must be:

A) the same period that was used by the lessor.
B) the remaining life of the asset from the lease inception.
C) the term of the lease.
D) at most the term of the lease but possibly longer if title is transferred at end of lease.

E) C) and D)
F) None of the above

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Question 63

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Ryan Corp.leased an asset from Amanda Corp.under a finance lease.The original entry for finance lease included a debit to leased asset for $75,000.Amortization on the asset amounted to $7,500.At the end of the year,the lease liability on the books was $64,567.What is the temporary difference?

WXZ entered into a direct financing lease with TUV for the use of an asset which cost WXZ $240,000.The lease agreement contained a bargain purchase option effective immediately after the fifth rental,which provided that TUV could purchase the asset at that time.The estimated life of the asset was 10 years with an estimated residual value of $400.TUV's annual depreciation expense is (use straight- line) :

The recorded values of the asset(s)and corresponding liability at the inception of a finance lease (from the point of view of the lessee)will always be the same under ASPE and IFRS.

The term of a finance lease includes the initial lease term and any bargain renewal terms.

RST leased equipment from MNO to be used in its warehouse.The lease term is five years.RST spent $5,000 for ordinary repairs during the second year of the lease.RST should:

All of the following are methods of avoiding capitalization except:

The following information relates to a lease contract: The lessor contracted with an insurance company,which guaranteed the residual value at 1-1-x4. There are no uncertainties with respect to collectability of lease payments or performance by lessor. (a)Determine the annual lease payment (b)Classify the lease for both lessee and lessor (c)Record the 2014 entries for both parties

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee,the:

A lease agreement includes the following provisions: Inception: 1/1/x0 Annual lease payments of $6,000 are due 12/31/x0,x1,x2 Annual lease payments of $4,000 are due 12/31/x3,x4,x5 There are 6 lease payments in all Lessor's implicit rate of return: 12% This is a finance lease to the lessor How much interest revenue is recognized in 20x0 by the lessor (assume a calendar year fiscal year) ?

The lessee's incremental borrowing rate is the rate that,at the inception of the lease,the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.

For an operating lease,the amount initially capitalized by the lessee is the present value of the lease rents to be paid over the lease term.

All four finance lease criteria must be met in order for a lease to be deemed a finance lease.

Company X leased an asset to Y on December 31 2014 with the first payment occurring on that date.The lease was a sales-type lease (it met all the conditions).The cash payment on December 31,2014 was $1,582 representing 1/5^th of the lease arrangement.Assuming that the profit on the sales amounted to 11% of the total lease receivable and the unearned finance revenue was 1.57 times the profit on the sale,prepare the journal entry at the inception of the lease (use the gross profit method).

A sale and leaseback occurs when one party sells an asset to a second party who then leases it back to the first party.

Under both operating and finance leases,periodic rent expense for a lessee is likely to be the same over successive periods.

Executory costs include:

For a finance lease,an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term,excluding that portion of the payments representing executory costs such as insurance,maintenance,and property taxes to be paid by the lessor,together with any profit thereon,should be recorded by the lessee as a(n) :

List the guidelines required under ASPE that are used to determine whether a lease is a finance lease from the lessors point of view?