1-Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs. Initial direct costs are expensed at the inception of the lease in:

A-An operating lease.

B-A capital lease.

C-A direct financing lease.

D-A sales-type lease.

2-Recording a sales-type lease is similar to recording:

A-A purchase on account.

B-An exchange of assets.

C-A sale of a fixed asset.

D-A sale of merchandise on account

3-For a capital lease, an amount equal to the present value of the minimum lease payments should be recorded by the lessee as a(n):

A-Asset and a liability.

B-Asset and a different amount should be recorded as a liability.

C-Liability and a different amount should be recorded as an asset.

D-Expense

4-When a capital lease is first recorded at the inception of the lease, the lessee typically debits:

A-Leased asset.

B-Rent expense.

C-Lease expense.

D-Lease receivable

5-XYZ Company leased equipment to West Corporation under a lease agreement that qualifies as a capital lease to West but not as a result of a bargain purchase option or a title transfer. The present value of the asset is $600,000. The expected economic life of the asset is 10 years. The lease term is five years. Using the straight-line method, what would West record as annual depreciation?

A-$120,000.

B-$61,000.

C-$60,000.

D-$0.

6-What are the three types of expenses that a lessee experiences with a capital lease?

A-Lease expense, executory costs, interest expense.

B-Depreciation expense, lease expense, interest expense.

C-Executory costs, lease expense, depreciation expense.

D-Depreciation expense, interest expense, executory costs.

7-From the perspective of the lessee, leases may be classified as either:

A-Direct financing or sales-type.

B-Capital or direct financing.

C-Capital or operating.

D-Direct financing or operating.

8-One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

A-90% of the cost of the asset.

B-75% of the fair value of the asset.

C-90% of the fair value of the asset.

D-75% of the cost of the asset.

9-Crystal Corporation recorded a lease payment as follows:

Rent expense..............2,000

Cash...........................2,000

Crystal must have a(n):

A-Operating lease.

B-Leveraged lease.

C-Capital lease.

D-Direct financing lease.

10-We classify a lease as a Type A lease if:

A-the present value of lease payments is less than the asset's book value.

B-the present value of lease payments is less than the asset's fair value.

C-the usual risks and rewards are transferred to the lessee.

D-the usual risks and rewards are retained by the lessor

11-Refer to the following lease amortization schedule. The 10 payments are made annually starting with the inception of the lease. Title does not transfer to the lessee and there is no bargain purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

What would be the outstanding balance after payment 10?

A-$0.

B-$2,028.

C-$8,929.

D-$10,000.

Transcribed Image Text:

Payment 1 2 3 4 5 6 7 8 9 10 Cash Payment 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Effective Interest 6,394 5,961 5,477 4,934 4,326 3,645 2,882 ? ? Decrease in balance 10,000 3,606 4,039 ? Balance 63,282 ? 53,282 4,523 41,114 5,066 36,048 5,674 30,373 6,355 24,018 7,118 16,901 49,676 45,638 ? ? Payment 1 2 3 4 5 6 7 8 9 10 Cash Payment 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Effective Interest 6,394 5,961 5,477 4,934 4,326 3,645 2,882 ? ? Decrease in balance 10,000 3,606 4,039 ? Balance 63,282 ? 53,282 4,523 41,114 5,066 36,048 5,674 30,373 6,355 24,018 7,118 16,901 49,676 45,638 ? ?

Answer rating: 100% (QA)

1 AAn operating lease 2 DA sale of merchandise on account 3 A Asse... View the full answer