Question 1

The tax advantage in leasing arrangements is most apparent

Accepted Answer

B

Question 2

Rex,a licensed contractor,rented a heavy duty brush cutter from YouRentAll Inc.Within the first few minutes of use,the blade came off and extensively damaged the shroud and housing of the machine.It was determined that the bolts that held the blade on were left loose by some previous user.YouRentAll sued Rex for the repair costs,claiming Rex should have checked out the machine before using.Assuming the lease contract did not speak to this type of situation,how would the court rule?

Accepted Answer

The defendant (Rex) would win because there is an implied warranty of fitness when renting equipment, which means the equipment is expected to be in a condition suitable for the purpose for which it is rented. This implies that the equipment should be safe to use without the need for the renter to inspect it for basic operational safety, such as ensuring the blade is securely attached.

Question 3

A sends a package valued at $400.00 to B by means of the courier company X Co.In the contract between A and X Co. ,there is a limitation of liability clause that limits X Co.'s liability for damage or loss caused to the goods by any reason whatsoever,including the negligence of X Co.and/or its employees,to $20.00.When the goods reach B,they are damaged.If A sues X Co.for the full $400.00,

Accepted Answer

The limitation of liability clause in the contract between A and X Co. is effective in reducing A's damages to $20.00 regardless of the reason for the damage or loss, including X Co.'s negligence or that of its employees. Therefore, A will not succeed in suing X Co. for the full $400.00.

Question 4

While A is staying in a hotel,A's room is broken into and her jewellery is stolen.The hotel provided state of the art security and the latest and most secure locks on all guest room doors.If A sues the hotel,at common law,

Accepted Answer

At common law, innkeepers are strictly liable for the loss or theft of their guests' belongings. This means that A does not need to prove negligence on the part of the hotel or its employees. The fact that the hotel provided state of the art security and the latest and most secure locks is irrelevant. Therefore, A will succeed if she sues the hotel.

Question 5

A leases a harvesting machine from B to be used during the harvesting season in Ontario,which is from the beginning of August to the end of September.In this case,the lease is best described as

Accepted Answer

The lease is an operating lease because it is for a short-term period and the lessor (B) retains ownership of the machine. It does not meet the criteria for a financing lease or a purchase/capital lease, which involve longer-term leases and potential transfer of ownership to the lessee. It also does not meet the criteria for a hire-purchase agreement, which typically involves regular payments over time towards ownership of the asset.

Question 6

Identify which of the following statements correctly describes a hire-purchase agreement.

Accepted Answer

A hire-purchase agreement is a contract where the owner of goods allows the hirer to use the goods for a specific period of time while the hirer pays regular installments. At the end of the stipulated term, the hirer has an option to purchase the item. Therefore, statement E correctly describes a hire-purchase agreement.

Question 7

In a bailment of common carriage,where the bailor proves that the goods were given to the bailee in good condition but were returned damaged,the bailee will be held liable unless it can show that the damage was caused by

Accepted Answer

In a bailment of common carriage, the bailee is held to a high standard of care and is therefore liable for any damage to the goods unless they can prove that the damage was caused by one of the following: the default of the bailor (such as providing inadequate packaging), an act of God (unavoidable and unpredictable natural event), or the dangerous condition of the goods. Option A is the only choice that includes all three causes of damage for which the bailee would not be held liable.

Question 8

Given its importance,how does the accounting profession determine whether a lease is an operating lease or a purchase capital lease?

Accepted Answer

The classification of a lease as an operating lease or a capital lease (finance lease under newer standards) often depends on specific criteria, one of which includes whether the ownership of the asset is expected to transfer to the lessee at the end of the lease term.

Question 9

A reason to sue for breach of a contract of bailment rather than for negligence is that in a contract of bailment,

Accepted Answer

The answer of A reason to sue for breach of...

Question 10

Hilda rented a hospital bed from Medical Leasing Co.for her bedridden father.In the contract she was referred to as the ________ and Medical Leasing was referred to as the ________.

Accepted Answer

According to the given scenario, Hilda rented the hospital bed from Medical Leasing Co. Therefore, Hilda is the lessee (renter) and Medical Leasing Co. is the lessor (owner). Option A correctly identifies the parties involved in this leasing agreement.

Question 11

A and B enter into an agreement for a car whereby A will make lease payments for a certain term,after which A will have the option of buying the car by a final payment of $5000.00.In this case,the lease is best described as

Accepted Answer

The answer of A and B enter into an agreement...

Question 12

Marcus rented some scaffolding to aid in replacing the siding of his house.This type of lease would be referred to as

Accepted Answer

An operating lease is correct because it is a short-term lease agreement that allows the lessee to rent equipment or property for a period that is shorter than the asset's useful life, which fits the scenario of renting scaffolding for a specific, temporary project like replacing siding.

Question 13

Quincy owns a metal fabricating company.He is desperately in need of working capital in order to carry out several large orders.Therefore he sells his heavy stamping equipment to Beneficial Leasing Inc.in a five-year purchase lease plan.This arrangement amounts to

Accepted Answer

A sale and leaseback arrangement involves selling an asset (in this case, the heavy stamping equipment) to a leasing company and then leasing it back over a set period of time. This allows the owner to free up cash for other purposes while still retaining the use of the asset. In this case, Quincy needs working capital to carry out several large orders, so selling the equipment and leasing it back allows him to achieve this while still having access to the equipment for future orders.

Question 14

A and B are neighbours.B wants to trim his hedges,but his trimmer is broken.Being close neighbours,A and B often borrow things from each other,so B borrows A's trimmer from A's garage.This is an example of

Accepted Answer

This is a gratuitous bailment as there is no reward or value involved in the borrowing of the trimmer. It is a simple act of neighborliness where A lends B the trimmer to help him trim his hedges.

Question 15

Which of the following would NOT be a defence for a carrier that is sued for damage caused to goods during shipping when there is no contractual limitation of liability?

Accepted Answer

Reasonable care is not a defense for a carrier in cases of damage to goods during shipping; it is a standard of conduct. The other options are recognized defenses: act of God, inherent vice, and fault of the shipper.

Question 16

Use the fact situation in Q3 to answer the related question that follows. Using the fact situation above,assume that just after B,the dealer,enters into the lease agreement with A,he assigns the lease to a financing company,which gives notice to A to make all payments to the company until the price has been paid in full,at which time the company will transfer the car to A.In this case,the lease is best described as

Accepted Answer

The lease in this scenario is best described as a finance lease because the financing company has taken the place of the dealer as the lessor and is now receiving payments from A with the intention of ultimately transferring ownership of the car to A once the price has been paid in full.

Question 17

Use the facts of this situation to answer the related question that follows it. A enters into an agreement with B,an automobile dealer.A does not have the cash to buy the car,so a leasing arrangement is made under which each lease payment is a payment towards the purchase of the car.Ownership of the car remains with B until A makes the last payment,at which time it is transferred to A.
In the fact situation above,the lease is best described as

Accepted Answer

The answer of Use the facts of this situation to...

Question 18

A and B agree that A will lease a truck owned by B.The truck is valued at $30 000 and the term,which cannot be cancelled,is three years,by which time A will have paid slightly more than $22 500.00 in lease payments.In this situation,the lease is best described as

Accepted Answer

The answer of A and B agree that A will...

Question 19

In leases,who is most likely to carry the insurance and bear the cost of maintenance and repairs?

Accepted Answer

The answer of In leases,who is most likely to carry...

Question 20

A takes his car into B's car repair shop.B does substantial repairs to A's car and presents A with an invoice for $1500.00.A says,"I'll come back later to pay you" and leaves.A couple of months go by and A has not returned to pay for the repairs.B has which of the following options?

Accepted Answer

B has multiple legal remedies in this situation. B can sue A for the cost of repairs (A), has a mechanic's lien on the car for the amount of the repairs (B), can sell the car to recover the cost of repairs after a certain period of time if permitted by law (C), and can retain possession of the car pending payment as part of the lien rights (D).

Quiz 15: Bailment and Leasing