Exam 18: Extension: Ol Accounting for Leases Current Standard

A guaranteed residual value reduces the amount of minimum lease payments.

In a sales-type capital lease, the lessor records a lease receivable and depreciates the leased asset.

With an operating lease, ________.

Which of the following factors is most indicative that a lease should be recorded as a a finance lease under IFRS?

The lessor capitalizes initial direct costs associated with an operating lease and amortizes them over the life of the lease.

Which of the following is true if a lease includes both a bargain purchase option and a residual value?

In a sales-type capital lease, the lessor expenses initial direct costs at the inception of the lease.

Lessees generally depreciate leased assets over the lease term unless the lease includes a transfer of ownership or a bargain purchase option.

One disadvantage of leasing an asset is that the lessee bears the risk of obsolescence.

On the books of a lessee, a lease may be classified as either ________.

Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million. The lease agreement between SuperByte and Laguna Madre had the follow terms: 1) The lease is noncancellable. 2) The lease has no residual value or bargain purchase option. 3) The lease term is 8 years; payments are made semiannually. 4) Depreciation is recorded each December 31 using the straight-line approach. 5) The economic life of the equipment is 8 years. 6) The lessee's incremental borrowing rate and the implicit interest rate are both 12% annually. 7) The lease payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1. 8) The fair value of the equipment at the inception of the lease is $16,000,000. Superbyte Corporation would account for this lease as ________.

Sumner leases a copier from Jenks Corporation under an operating lease. Which of the following statements is correct?

If the lease contract allows the lessee to exercise the bargain purchase option prior to the lease termination, all accounting computations must be based on the shorter period.

The lessor's implicit rate is the rate that the lessor would incur in a debt agreement under similar terms and circumstances.

Lessees capitalize expenditures for leasehold improvements as part of the carrying value of the leased asset.

The appropriate asset value that a lessee reports on its balance sheet for an operating lease is ________.

Lessors classify leases as either sales-type leases or incremental-borrowing type leases.

Under IFRS, the lessee must used the lessee's incremental borrowing rate in determining the present value of the minimum lease payments.

By leasing an asset for less than 75% of its economic life or less than 90% of its fair market value, a company may avoid classifying the lease as a capital lease.

In a direct-finance capital lease, the lessor capitalizes any initial direct costs as part of the lease receivable and expenses them over the term of the lease.