ACG 3113 Leases Exam Study Guide
A lease is legally a/an ___________ contract.
A. mutually performed
B. executed
C. executory contract.
D. unilateral - Answer C executory contract.
When accounting for an operating lease, which one of the following accounts are
charged with the expense on the lessee's income statement?
A. Depreciation Expense
B. Amortization Expense
C.
D. Lease Operating Expense - Answer C Rent Expense
The lessor of a building with an operating lease will present on its balance sheet an
asset equal to
A. zero.
B. the present value of future lease receipts.
C. the depreciated historical cost of the asset.
D. the fair value of the leased asset. - Answer C. the depreciated historical cost of the
asset.
To remain in accordance with GAAP, operating leases require note disclosure of the
A. amount of annual rental payments.
B. discounted present value of future lease payments.
C. undiscounted present value of future lease payments.
D. future cash outflows arising from operating leases. - Answer D. future cash outflows
arising from operating leases.
Compared to a firm with a capital lease, operating leases help the lessee firm earn
A. higher asset turnover ratio.
B. lower return on assets.
, C. higher debt-to-equity ratio.
D. lower NOPAT. - Answer A. higher asset turnover ratio.
If a corporation signs a ten-year lease for a building and the present value of the lease
payments is $250,000, the lease is a capital lease if the
A. fair value of the building is $1,000,000.
B. remaining useful life of the building is 20 years.
C. lessor can purchase the building for $5,000 at the end of the lease when the fair value
is estimated to be $25,000.
D. building reverts back to the lessor at the end of the lease. - Answer C. lessor can
purchase the building for $5,000 at the end of the lease when the fair value is estimated
to be $25,000.
GAAP establishes specific criteria for the treatment of leases. If any of the criteria are
met, the lessee
A. must treat the lease as an operating lease.
B. must treat the lease as a capital lease.
C. may choose the treatment if two or less criteria are met.
D. may elect to treat the lease as an operating lease if only one criterion is met. - Answer
B. must treat the lease as a capital lease.
GAAP establishes specific criteria for the treatment of leases. Which of the following
does not accurately describe the criteria applicable to a lessee?
A. The lease agreement contains a bargain purchase option.
B. The lease term is equal to or exceeds 75% of the leased asset's useful life.
C. The lease agreement transfers title of the leased asset to the lessee at the end of the
lease term.
D. The present value of the minimum lease payments is equal to or greater than 75% of
the leased asset's fair value. - Answer D. The present value of the minimum lease
payments is equal to or greater than 75% of the leased asset's fair value.
When a lessee has a capital lease for its primary premises it would initially record a
leased asset on the balance sheet equal to
A. zero.
B. the present value of future lease payments.
A lease is legally a/an ___________ contract.
A. mutually performed
B. executed
C. executory contract.
D. unilateral - Answer C executory contract.
When accounting for an operating lease, which one of the following accounts are
charged with the expense on the lessee's income statement?
A. Depreciation Expense
B. Amortization Expense
C.
D. Lease Operating Expense - Answer C Rent Expense
The lessor of a building with an operating lease will present on its balance sheet an
asset equal to
A. zero.
B. the present value of future lease receipts.
C. the depreciated historical cost of the asset.
D. the fair value of the leased asset. - Answer C. the depreciated historical cost of the
asset.
To remain in accordance with GAAP, operating leases require note disclosure of the
A. amount of annual rental payments.
B. discounted present value of future lease payments.
C. undiscounted present value of future lease payments.
D. future cash outflows arising from operating leases. - Answer D. future cash outflows
arising from operating leases.
Compared to a firm with a capital lease, operating leases help the lessee firm earn
A. higher asset turnover ratio.
B. lower return on assets.
, C. higher debt-to-equity ratio.
D. lower NOPAT. - Answer A. higher asset turnover ratio.
If a corporation signs a ten-year lease for a building and the present value of the lease
payments is $250,000, the lease is a capital lease if the
A. fair value of the building is $1,000,000.
B. remaining useful life of the building is 20 years.
C. lessor can purchase the building for $5,000 at the end of the lease when the fair value
is estimated to be $25,000.
D. building reverts back to the lessor at the end of the lease. - Answer C. lessor can
purchase the building for $5,000 at the end of the lease when the fair value is estimated
to be $25,000.
GAAP establishes specific criteria for the treatment of leases. If any of the criteria are
met, the lessee
A. must treat the lease as an operating lease.
B. must treat the lease as a capital lease.
C. may choose the treatment if two or less criteria are met.
D. may elect to treat the lease as an operating lease if only one criterion is met. - Answer
B. must treat the lease as a capital lease.
GAAP establishes specific criteria for the treatment of leases. Which of the following
does not accurately describe the criteria applicable to a lessee?
A. The lease agreement contains a bargain purchase option.
B. The lease term is equal to or exceeds 75% of the leased asset's useful life.
C. The lease agreement transfers title of the leased asset to the lessee at the end of the
lease term.
D. The present value of the minimum lease payments is equal to or greater than 75% of
the leased asset's fair value. - Answer D. The present value of the minimum lease
payments is equal to or greater than 75% of the leased asset's fair value.
When a lessee has a capital lease for its primary premises it would initially record a
leased asset on the balance sheet equal to
A. zero.
B. the present value of future lease payments.
