1. Lone Star Company would account for this as: A. A capital lease. B. A direct financing...


1. Lone Star Company would account for this as:

A.  A capital lease.

B.  A direct financing lease.

C.  A sales type lease.

D.  An operating lease.

2. What is the net carrying value of the lease liability in Lone Star's June 30, 2011 balance sheet? Round your answer to the nearest dollar.

A.  $15,943,154

B.  $17,533,246

C.  $21,000,000

D.  None of the above is correct.

3. What is the interest revenue that Technoid would report on this lease in its 2011 income statement?

A.  $0

B.  $1,673,820

C.  $876,662

D.  None of the above is correct.

4. If the lessor records unearned rent at the beginning of a lease term, the lease must:

A. Be a direct financing lease.

B. Be a sales-type lease.

C. Contain a bargain renewal option.

D.  Be an operating lease.

5. On September 1, 2011, Custom Shirts Inc.  entered into a lease agreement appropriately classified as an operating lease.  The lease term is 3 years.  The annual payments are (a) $20,000 for year 1, (b) $24,000 for year 2, and (c) $28,000 for year 3.  How much rent expense will Custom Shirts recognize for 2011?

A.  $6,667.

B.  $24,000.

C.  $20,000.

D.  $8,000.

6. The lessee normally measures the lease liability to be recorded as the:

A. The future value of the minimum lease payments.

B. The sum of the cash payments over the term of the lease.

C. Present value of the minimum lease payments.

D.  The fair market value of the leased asset.

7. Leasehold improvements usually are classified in a balance sheet as:

A. Property, plant and equipment.

B. Other long-term assets.

C.  Investments.

D.  Expenses.

8. 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.

9. Since the lease payments under a lease agreement are normally paid at the beginning of each period, the appropriate compound interest table to be used to determine the amount at which the leased asset should be recorded is the:

A. Ordinary annuity table.

B. Present value of $1 table.

C. Present value of an annuity due table.

D.  Future value of an annuity due table.

An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Compound Interest
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound...
Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...
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Financial Reporting and Analysis

ISBN: 978-0078025679

6th edition

Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon

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