Generally accepted accounting principles require that certain lease agreements be accounted for in similar fashion as purchased assets. The theoretical basis for this treatment is that a lease of this type ________.

• Is an example of form over substance
• Must be recorded in accordance with the concept of cause and effect
• Effectively conveys all of the benefits and risks incident to the ownership of property
• Provides the use of the leased asset to the lessee for a limited period of time

Which of the following would most likely meet the requirement that a lease contract has an identified asset?

• Products to be held and sold as inventory
• Manufacturing equipment
• Services to be provided for the contract term
• All of these would meet the identified asset requirement

Which of the following is not a requirement for a lease to exist?

• The lessee directs how the identified asset is used.
• The lease term must cover substantially all of the identified asset's useful life.
• The contract must identify an asset that is to be leased.
• The lessee can derive substantially all of the identified asset's economic benefits over the lease term.

Which of the following is not a primary advantage of leasing for the lessee?

• Retention of the asset's residual value
• Protection against obsolescence
• Leased assets being generally easier to replace than purchased assets
• Little to no down payments

Which of the following is an advantage of leasing for the lessor?

• Potential for increased income
• Long-term business relationships with lessees
• Residual value of the asset is retained
• All of these are advantages to the lessor

Which of the following is not involved in the determination of whether a lease is classified as a finance lease by the lessee?

• Lease payment probability
• Bargain purchase option
• Fair value of the asset
• Economic life of the asset

A lessor created an asset that was designed to the lessee's unique specifications (no alternative use). Under the terms of a lease contract, 50% of the economic life of the asset is covered by the lease term and the present value of the contract's lease payments is 60% of the estimated fair value of the asset. How should the lessee classify this lease?

• Sales-type lease
• Finance lease
• Capital lease
• Operating lease

How many of the general classification criteria need to be met for a lease to be classified by a lessee as an operating lease?

• 5
• 1
• 0
• 7

One of the general criteria for a finance lease is that the present value at the beginning of the lease term of the minimum lease payments (and any residual value guarantee) is expected to equal or exceed ________.

• 50% of the property's fair market value
• The property's full fair market value
• 75% of the property's fair market value
• 90% of the property's fair market value

If none of the five general classification criteria are met for a lease, but both of the additional lessor criteria are met, a lease will be classified as ________.

• An operating lease by the lessee and a direct financing lease by the lessor
• An operating lease by the lessee and a sales-type lease by the lessor
• An operating lease by both the lessee and the lessor
• A finance lease by the lessee and a sales-type lease by the lessor