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Exam 7: Accounting for Leases

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Question 21

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From the perspective of the lessor, which statement is correct respecting the criteria for determining whether a lease is an operating or a finance lease?

A) Substantially all of the risks and rewards of ownership have been transferred from the lessee to the lessor.
B) There is a transfer of ownership to the lessee or a bargain purchase option (BPO) at the end of the lease.
C) The lease term is a minor part of the economic life of the asset.
D) The present value of the lease payments is greater than 50% fair value of the leased asset.

E) B) and C)
F) A) and D)

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Question 22

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What are the advantages to the lessee of leasing an asset, rather than purchasing it?

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1. "100%" financing of the asset's purch...

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Question 23

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List four factors that preclude the seller-lessee from recognizing a sale on a sale and leaseback transaction.

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due on commencement date } \\\text { of lease) }\end{array} & \$ 30,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 10 \% \\\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \\\hline \text { Guaranteed residual value } & 28,000 \\\hline \text { Expected payout under guarantee } & 15,000 \\\hline\end{array}$

Which statement is correct about the "guaranteed residual value"?

For the following lease, determine the amount the ROU asset will be initially measured at assuming that the company does not elect to use the practical expedient available to it. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due at end of } \\\text { year) }\end{array} & \$ 22,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 10 \% \\\hline \begin{array}{l}\text { Implicit rate (not readily } \\\text { determinable by lessee) }\end{array} & 8 \% \\\hline \begin{array}{l}\text { Non-lease costs included in } \\\text { annual payment }\end{array} & 5,000 \\\hline\end{array}$

Which will decrease the "agency cost of leasing"?

Under ASPE, which statement is correct for the lessee?

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due at commencement date of } \\\text { lease) }\end{array} & \$ 23,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 10 \% \\\hline \text { Implicit rate (readily determinable by lessee) } & 8 \% \\\hline \text { Unguaranteed residual value } & \text { NA } \\\hline \text { Guaranteed residual value } & 20,000 \\\hline \text { Expected payout under guarantee } & 14,000 \\\hline\end{array}$

Which statement is true?

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}\hline \text { Annual payment (due at end of year) } & \$ 23,150 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 8 \% \\\hline \text { Implicit rate (readily determinable by lessee) } & 6 \% \\\hline \text { Guaranteed residual value } & 10,000 \\\hline \text { Expected payout under guarantee } & 10,000 \\\hline\end{array}$

Which statement is correct about the "guaranteed residual value"?

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due at commencement date of } \\\text { lease) }\end{array} & \$ 23,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 10 \% \\\hline \text { Implicit rate (readily determinable by lessee) } & 8 \% \\\hline \text { Unguaranteed residual value } & \text { NA } \\\hline \text { Guaranteed residual value } & 20,000 \\\hline \text { Expected payout under guarantee } & 14,000 \\\hline\end{array}$

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due at end of } \\\text { year) }\end{array} & \$ 25,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 7 \% \\\hline \begin{array}{l}\text { Implicit rate (readily } \\\text { determinable by lessee) }\end{array} & 6 \% \\\hline \begin{array}{l}\text { Non-lease costs included in } \\\text { annual payment }\end{array} & 2,000 \\\hline\end{array}$

Under ASPE, assuming all information is available, which rate is used by the lessee in the lease present value calculations?

Under ASPE, which statement is correct for the lessee?

Under ASPE, what is the meaning of "minimum lease payments"?

What is true respecting the economics behind leasing arrangements?

What entry is required for the lessor in a finance lease?

Under IFRS, assuming all information is available, which rate is used by the lessee in the minimum lease calculation?