WGU D105 OA #2 Updated Actual Exam Questions
and Correct Answers 2025–2026 | Intermediate
Accounting III Objective Assessment | Verified
Answers with Rationales | Graded A+
THIS EXAM INCLUDES:
✔ Updated 2025–2026 OA #2 content
✔ Actual exam-style questions and answers
✔ Detailed rationales and explanations)
✔ Full disclosure and reporting requirements
✔ Practice questions modeled after the OA
✔ High-yield concepts and formulas
✔ Printable study guide format
,Testbank: Advanced Accounting Topics
Section 1: Leases
Question 1
What is a major reason why a company may become involved in leasing to other
companies?
A) Lower maintenance costs
B) Tax incentives
C) Reduced administrative burden
D) Improved customer relations
Answer: B) Tax incentives
Rationale: Companies often engage in leasing transactions to take advantage of various
tax benefits. Lessors can claim depreciation deductions and other tax incentives
associated with ownership, while lessees may deduct lease payments as business
expenses. These tax advantages make leasing an attractive financing alternative for
many companies.
Question 2
Which of the following best describes current practice in accounting for leases?
A) Only capital leases are recorded on the balance sheet
B) All long-term leases are capitalized
C) Operating leases are expensed as incurred
D) All leases are treated as off-balance-sheet financing
,Answer: B) All long-term leases are capitalized
Rationale: Under current accounting standards (ASC 842 and IFRS 16), lessees must
recognize right-of-use assets and lease liabilities for all leases with terms longer than 12
months. This represents a significant change from previous standards where many
operating leases were kept off the balance sheet.
Question 3
What single lease expense is recognized on the income statement?
A) Depreciation expense
B) Interest expense
C) An operating lease
D) Rent expense
Answer: C) An operating lease
Rationale: For operating leases, the lessee recognizes a single lease expense (typically
on a straight-line basis) over the lease term. This contrasts with finance leases, where the
lessee recognizes both depreciation expense and interest expense separately.
Question 4
In computing present value of the lease payments, what rate should the lessee
use?
A) The lessee's incremental borrowing rate
B) The lessor's implicit rate
, C) The market rate
D) Use the implicit rate of the lessor, assuming that the implicit rate is known to the
lessee
Answer: D) Use the implicit rate of the lessor, assuming that the implicit rate is
known to the lessee
Rationale: The lessee should use the lessor's implicit rate when it is readily
determinable. If the implicit rate is not readily determinable, the lessee should use its
incremental borrowing rate. The lessor's implicit rate is preferred because it represents
the actual rate used in the lease transaction.
Question 5
Which of the following is an advantage of captive leasing companies over the
other players in the leasing market?
A) Lower interest rates
B) They have the point-of-sales advantage in finding leasing customers
C) Better regulatory compliance
D) Higher residual values
Answer: B) They have the point-of-sales advantage in finding leasing customers
Rationale: Captive leasing companies are subsidiaries of manufacturers or retailers that
lease their parent company's products. They have a significant competitive advantage
because they are integrated into the sales process, allowing them to offer leasing
options directly at the point of sale.
and Correct Answers 2025–2026 | Intermediate
Accounting III Objective Assessment | Verified
Answers with Rationales | Graded A+
THIS EXAM INCLUDES:
✔ Updated 2025–2026 OA #2 content
✔ Actual exam-style questions and answers
✔ Detailed rationales and explanations)
✔ Full disclosure and reporting requirements
✔ Practice questions modeled after the OA
✔ High-yield concepts and formulas
✔ Printable study guide format
,Testbank: Advanced Accounting Topics
Section 1: Leases
Question 1
What is a major reason why a company may become involved in leasing to other
companies?
A) Lower maintenance costs
B) Tax incentives
C) Reduced administrative burden
D) Improved customer relations
Answer: B) Tax incentives
Rationale: Companies often engage in leasing transactions to take advantage of various
tax benefits. Lessors can claim depreciation deductions and other tax incentives
associated with ownership, while lessees may deduct lease payments as business
expenses. These tax advantages make leasing an attractive financing alternative for
many companies.
Question 2
Which of the following best describes current practice in accounting for leases?
A) Only capital leases are recorded on the balance sheet
B) All long-term leases are capitalized
C) Operating leases are expensed as incurred
D) All leases are treated as off-balance-sheet financing
,Answer: B) All long-term leases are capitalized
Rationale: Under current accounting standards (ASC 842 and IFRS 16), lessees must
recognize right-of-use assets and lease liabilities for all leases with terms longer than 12
months. This represents a significant change from previous standards where many
operating leases were kept off the balance sheet.
Question 3
What single lease expense is recognized on the income statement?
A) Depreciation expense
B) Interest expense
C) An operating lease
D) Rent expense
Answer: C) An operating lease
Rationale: For operating leases, the lessee recognizes a single lease expense (typically
on a straight-line basis) over the lease term. This contrasts with finance leases, where the
lessee recognizes both depreciation expense and interest expense separately.
Question 4
In computing present value of the lease payments, what rate should the lessee
use?
A) The lessee's incremental borrowing rate
B) The lessor's implicit rate
, C) The market rate
D) Use the implicit rate of the lessor, assuming that the implicit rate is known to the
lessee
Answer: D) Use the implicit rate of the lessor, assuming that the implicit rate is
known to the lessee
Rationale: The lessee should use the lessor's implicit rate when it is readily
determinable. If the implicit rate is not readily determinable, the lessee should use its
incremental borrowing rate. The lessor's implicit rate is preferred because it represents
the actual rate used in the lease transaction.
Question 5
Which of the following is an advantage of captive leasing companies over the
other players in the leasing market?
A) Lower interest rates
B) They have the point-of-sales advantage in finding leasing customers
C) Better regulatory compliance
D) Higher residual values
Answer: B) They have the point-of-sales advantage in finding leasing customers
Rationale: Captive leasing companies are subsidiaries of manufacturers or retailers that
lease their parent company's products. They have a significant competitive advantage
because they are integrated into the sales process, allowing them to offer leasing
options directly at the point of sale.
