WGU D105 OA2 Intermediate Accounting III (Units 5–9) Practice Quiz 2026 UPDATE
1. Under ASC 842, which of the following is one of the five criteria used to classify a lease as a
finance lease by a lessee?
A. The lease contains a provision to renew the lease at a fair market value.
B. The lease term is for the major part of the remaining economic life of the underlying
asset.
C. The lease term is at least 50% of the useful life of the asset.
D. The lessor retains ownership of the asset at the end of the lease term.
Answer: B
Rationale: A lease is classified as a finance lease if the lease term is for a major part
(typically interpreted as 75% or more) of the asset’s remaining economic life.
2. When a lessee classifies a lease as an operating lease, how is the total lease expense
typically recognized over the lease term?
A. On a straight-line basis as a single lease cost.
B. Using the effective interest method for interest and straight-line for depreciation.
C. As an accelerated expense in the early years of the lease.
D. Only when cash payments are made.
,Answer: A
Rationale: Operating leases result in a single lease cost recognized on a straight-line basis
over the lease term, combining both the interest and amortization components.
3. Which rate should a lessee use to calculate the present value of lease payments if the rate
implicit in the lease is not readily determinable?
A. The prime rate.
B. The federal funds rate.
C. The lessor’s internal rate of return.
D. The lessee’s incremental borrowing rate.
Answer: D
Rationale: If the implicit rate is not known, the lessee must use its incremental borrowing
rate, which is the rate it would pay to borrow on a collateralized basis over a similar term.
4. For a lessor to classify a lease as a sales-type lease, which condition must be met in
addition to the lease meeting one of the finance lease criteria?
A. Collectibility of lease payments must be probable.
B. The asset must be specialized in nature.
C. The lease must not contain a purchase option.
D. Control of the underlying asset must transfer to the lessee.
Answer: D
, Rationale: A sales-type lease occurs when the lessee obtains control of the underlying
asset, effectively meaning the lease meets at least one of the five classification criteria.
5. A temporary difference that results in a Deferred Tax Liability (DTL) occurs when:
A. Book income is less than taxable income in the current year.
B. Interest is received on municipal bonds.
C. An expense is deductible for tax purposes before it is recognized for book purposes.
D. Fines and penalties are paid to the government.
Answer: C
Rationale: A DTL arises when future taxable amounts are expected because tax
depreciation exceeds book depreciation or an expense is deducted earlier for tax than for
books.
6. Which of the following is considered a permanent difference in accounting for income
taxes?
A. Product warranty liabilities.
B. Accelerated depreciation for tax and straight-line for books.
C. Proceeds from life insurance on key officers.
D. Installment sales recognized for tax as cash is collected.
Answer: C
1. Under ASC 842, which of the following is one of the five criteria used to classify a lease as a
finance lease by a lessee?
A. The lease contains a provision to renew the lease at a fair market value.
B. The lease term is for the major part of the remaining economic life of the underlying
asset.
C. The lease term is at least 50% of the useful life of the asset.
D. The lessor retains ownership of the asset at the end of the lease term.
Answer: B
Rationale: A lease is classified as a finance lease if the lease term is for a major part
(typically interpreted as 75% or more) of the asset’s remaining economic life.
2. When a lessee classifies a lease as an operating lease, how is the total lease expense
typically recognized over the lease term?
A. On a straight-line basis as a single lease cost.
B. Using the effective interest method for interest and straight-line for depreciation.
C. As an accelerated expense in the early years of the lease.
D. Only when cash payments are made.
,Answer: A
Rationale: Operating leases result in a single lease cost recognized on a straight-line basis
over the lease term, combining both the interest and amortization components.
3. Which rate should a lessee use to calculate the present value of lease payments if the rate
implicit in the lease is not readily determinable?
A. The prime rate.
B. The federal funds rate.
C. The lessor’s internal rate of return.
D. The lessee’s incremental borrowing rate.
Answer: D
Rationale: If the implicit rate is not known, the lessee must use its incremental borrowing
rate, which is the rate it would pay to borrow on a collateralized basis over a similar term.
4. For a lessor to classify a lease as a sales-type lease, which condition must be met in
addition to the lease meeting one of the finance lease criteria?
A. Collectibility of lease payments must be probable.
B. The asset must be specialized in nature.
C. The lease must not contain a purchase option.
D. Control of the underlying asset must transfer to the lessee.
Answer: D
, Rationale: A sales-type lease occurs when the lessee obtains control of the underlying
asset, effectively meaning the lease meets at least one of the five classification criteria.
5. A temporary difference that results in a Deferred Tax Liability (DTL) occurs when:
A. Book income is less than taxable income in the current year.
B. Interest is received on municipal bonds.
C. An expense is deductible for tax purposes before it is recognized for book purposes.
D. Fines and penalties are paid to the government.
Answer: C
Rationale: A DTL arises when future taxable amounts are expected because tax
depreciation exceeds book depreciation or an expense is deducted earlier for tax than for
books.
6. Which of the following is considered a permanent difference in accounting for income
taxes?
A. Product warranty liabilities.
B. Accelerated depreciation for tax and straight-line for books.
C. Proceeds from life insurance on key officers.
D. Installment sales recognized for tax as cash is collected.
Answer: C
