Question 1

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Yueve's Company is negotiating leases for three store locations.Yueve's incremental borrowing rate is 12 percent and the lessor's implicit rate is unknown (it is impracticable to determine).
Each store will have a useful economic life of 30 years.Lease payments will be made at the end of each year.Based on the data below properly classify each of the leases as an operating lease or a finance lease.The purchase price for each property is listed as an alternative to leasing. 
-On January 1, 2016, Dean Corporation signed a ten-year noncancelable lease for certain machinery.The terms of the lease called for Dean to make annual payments of $100,000 at the end of each year for ten years with title to pass to Dean at the end of this period.The machinery has an estimated useful life of 15 years and no residual value.Dean uses the straight-line method of depreciation for all of its fixed assets.Dean accordingly accounted for this lease transaction as a finance lease.The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%.With respect to this capitalized lease, Dean should record for 2016

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The answer of Use the following information for Questions 
Yueve's...

Question 2

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Yueve's Company is negotiating leases for three store locations.Yueve's incremental borrowing rate is 12 percent and the lessor's implicit rate is unknown (it is impracticable to determine).
Each store will have a useful economic life of 30 years.Lease payments will be made at the end of each year.Based on the data below properly classify each of the leases as an operating lease or a finance lease.The purchase price for each property is listed as an alternative to leasing. 
-On December 1, 2016, Goetz Corporation leased office space for 10 years at a monthly rental of $90,000.On that date Perez paid the landlord the following amounts:  The entire amount of $765,000 was charged to rent expense in 2016.What amount should Goetz have charged to expense for the year ended December 31, 2016?

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The answer of Use the following information for Questions 
Yueve's...

Question 3

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Yueve's Company is negotiating leases for three store locations.Yueve's incremental borrowing rate is 12 percent and the lessor's implicit rate is unknown (it is impracticable to determine).
Each store will have a useful economic life of 30 years.Lease payments will be made at the end of each year.Based on the data below properly classify each of the leases as an operating lease or a finance lease.The purchase price for each property is listed as an alternative to leasing. 
-Based on this information, which test(s) does Location A pass for classifying the lease as a finance lease.

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The answer of Use the following information for Questions 
Yueve's...

Question 4

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Yueve's Company is negotiating leases for three store locations.Yueve's incremental borrowing rate is 12 percent and the lessor's implicit rate is unknown (it is impracticable to determine).
Each store will have a useful economic life of 30 years.Lease payments will be made at the end of each year.Based on the data below properly classify each of the leases as an operating lease or a finance lease.The purchase price for each property is listed as an alternative to leasing. 
-Based on this information, which test(s) does Location C pass for classifying the lease as a finance lease.

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The answer of Use the following information for Questions 
Yueve's...

Question 5

A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?

Accepted Answer

The present value of the minimum lease payments less the present value of the unguaranteed residual value is the correct answer because it represents the lessor's net investment in the lease.

Question 6

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria.Which of the following is not one of the ways to accomplish this goal?

Accepted Answer

A bargain purchase option is actually one of the criteria that would require capitalization of a lease, not avoid it.

Question 7

The initial direct costs of leasing

Accepted Answer

In a sales-type lease, the lessor expenses the initial direct costs in the period of the sale.

Question 8

For a sales-type lease,

Accepted Answer

In a sales-type lease, the gross profit is determined at the inception of the lease and is not affected by whether the residual value is guaranteed or unguaranteed.

Question 9

If companies want to disqualify a lease as a finance lease to the lessee, while having the same lease qualify as a finance (sales or financing) lease to the lessor, which of the following are true?

Accepted Answer

The lessee can use the incremental borrowing rate if the implicit rate is not known, potentially leading to different lease classifications for lessee and lessor.

Question 10

Which of the following is true regarding footnote disclosure of operating lease payments under IFRS and U.S.GAAP?

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The answer of Which of the following is true regarding...

Question 11

The primary difference between a direct-financing lease and a sales-type lease is the

Accepted Answer

In a sales-type lease, the lessor recognizes a manufacturer's or dealer's profit at the inception of the lease, whereas in a direct-financing lease, there is no such profit recognition.

Question 12

Which of the following statements is correct?

Accepted Answer

All the statements are correct: In a direct-financing lease, initial direct costs are added to the net investment; in a sales-type lease, they are expensed; and for operating leases, they are deferred and allocated over the lease term.

Question 13

Use the following information for Questions 
Yueve's Company is negotiating leases for three store locations.Yueve's incremental borrowing rate is 12 percent and the lessor's implicit rate is unknown (it is impracticable to determine).
Each store will have a useful economic life of 30 years.Lease payments will be made at the end of each year.Based on the data below properly classify each of the leases as an operating lease or a finance lease.The purchase price for each property is listed as an alternative to leasing. 
-Based on this information, which test(s) does Location B pass for classifying the lease as a finance lease.

Accepted Answer

The answer of Use the following information for Questions 
Yueve's...

Question 14

All of the followings are ways in which companies avoid leased assets capitalization in devising lease agreements, except:

Accepted Answer

Companies avoid capitalization by ensuring the present value of lease payments is less, not more, than the fair value of the leased property.

Question 15

All of the following statements are true with regard to how the statement of financial position will be similarly affected by leasing the assets as opposed to issuing bonds and purchasing the assets, except which statement?

Accepted Answer

The specific accounts affected by leasing versus purchasing with bonds would differ, as leasing involves lease liabilities and right-of-use assets, while purchasing involves asset accounts and bond liabilities.

Question 16

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On January 1, 2016, Yancey, Inc.signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company.The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning of each year.
(b) The fair value of the building on January 1, 2016 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value.Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey's incremental borrowing rate is 11% per year.Holt Warehouse Co.set the annual rental to insure a 10% rate of return.The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.
-What is the amount of the total annual lease payment?

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The answer of Use the following information for questions 
On...

Question 17

When lessors account for residual values related to leased assets, they

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The answer of When lessors account for residual values related...

Question 18

All of the following statements are true regarding the circumvention of accounting rules for leases when determining whether a lease qualifies as an operating or capital lease except

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The answer of All of the following statements are true...

Question 19

The Lease Liability account should be disclosed as

Accepted Answer

The Lease Liability account should be disclosed as current portions in current liabilities and the remainder in non-current liabilities, as it reflects the portion of the lease liability that is due within the next 12 months and the portion that is due after the next 12 months, respectively. Therefore, it is divided between current and non-current liabilities.

Question 20

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On January 1, 2016, Yancey, Inc.signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company.The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning of each year.
(b) The fair value of the building on January 1, 2016 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value.Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey's incremental borrowing rate is 11% per year.Holt Warehouse Co.set the annual rental to insure a 10% rate of return.The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.
-What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)

Accepted Answer

The minimum annual lease payment is calculated as the present value of the lease payments over the lease term using the implicit rate of the lessor.The implicit interest rate is not given in the question, so it needs to be calculated using the other available information.

First, we need to calculate the annual rental payment. The lessor sets the rental payment to ensure a 10% rate of return. This means that the rental payment will be $400,000 (10% of $4,000,000). However, this rental payment includes $10,000 of executory costs related to taxes, which are not part of the lease payments. So, the lease payments are $390,000 ($400,000 - $10,000).

Next, we need to calculate the present value of the lease payments. Since the lease payments are equal, we can use the annuity present value formula:
PV = PMT x [(1 - (1 / (1 + r)n)) / r]
where PV is the present value, PMT is the lease payment, r is the implicit interest rate, and n is the number of periods (in this case, 10).

Using Yancey's incremental borrowing rate of 11%, we can calculate the present value of the lease payments as follows:
PV = $390,000 x [(1 - (1 / (1 + 0.11)10)) / 0.11]
PV = $2,976,199

Therefore, the minimum annual lease payment is $591,801 ($2,976,199 / 5). The answer is C.

Quiz 21: Accounting for Leases

A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria.Which of the following is not one of the ways to accomplish this goal?

The initial direct costs of leasing

For a sales-type lease,

If companies want to disqualify a lease as a finance lease to the lessee, while having the same lease qualify as a finance (sales or financing) lease to the lessor, which of the following are true?

Which of the following is true regarding footnote disclosure of operating lease payments under IFRS and U.S.GAAP?

The primary difference between a direct-financing lease and a sales-type lease is the

Which of the following statements is correct?

All of the followings are ways in which companies avoid leased assets capitalization in devising lease agreements, except:

All of the following statements are true with regard to how the statement of financial position will be similarly affected by leasing the assets as opposed to issuing bonds and purchasing the assets, except which statement?

When lessors account for residual values related to leased assets, they

All of the following statements are true regarding the circumvention of accounting rules for leases when determining whether a lease qualifies as an operating or capital lease except

The Lease Liability account should be disclosed as