Book Title; Author

Chapter 06 - Multiple choice quiz


1.
The user of a leased asset is referred to as the:
A.
vendor;
B.
purchaser;
C.
lessee;
D.
lessor.


2.
A finance lease is an agreement between an owner of an asset and a user of that asset wherein the:
A.
usual risks and benefits of ownership are transferred to the user;
B.
legal title to property is transferred to the lessee when the first lease payment is made;
C.
ownership passes to the lessor on inception date of the lease;
D.
substantially all of the risks and benefits of ownership remain with the lessor.


3.
Inception date of a lease is defined as the earlier date of the lease agreement and the date of:
A.
commitment of the parties to the principal provisions of the lease;
B.
the first payment by the lessee under the lease;
C.
first disclosure of the lease negotiations in the financial reports of the lessee;
D.
first receipt of minimum lease payments by the lessor.


4.
Whenever the terms of a lease transfer substantially all the risks and rewards of ownership to a lessee, the lease arrangement must be classified as:
A.
a contingent lease;
B.
a novated lease;
C.
a finance lease
D.
an operating lease.


5.
The minimum lease payment is defined as including all of the following components except:
A.
a bargain purchase option;
B.
a guaranteed residual value;
C.
the lease payments occurring over the lease term;
D.
contingent rentals.


6.
The present value of the minimum lease payments will be equal to the fair value of the leased asset if the lease arrangement contains a bargain purchase option or:
A.
a contingent rent;
B.
a 100% guaranteed residual value;
C.
an executory cost;
D.
a lease incentive amount.


7.
The present value of four minimum lease payments of $90,000 all one year in arrears, and a guaranteed residual value of $80,000 at the end of a four year lease term, using an implicit interest rate of 6% is:
A.
$466,400;
B.
$440,000;
C.
$393,938;
D.
$375,226.


8.
Which of the following is an appropriate journal entry for the initial recognition by a lessee of a finance lease arrangement?
A.
DR
Leased asset
CR
Bank loan
         
B.
DR
Leased asset
CR
Lease liability
 
C.
DR
Cash
CR
Leased asset
 
D.
DR
Leased liability
CR
Leased asset
 


9.
Where a lessee does not expect to purchase a leased asset, the asset must be depreciated across:
A.
its useful life;
B.
the full economic life of the asset;
C.
a period not exceeding 5 years;
D.
the shorter of the lease term or 20 years.


10.
When depreciating a leased asset which it expects to buy, a lessee will use the following calculation to determine the annual depreciation amount:
A.
Depreciable amount of leased asset/Useful life of leased asset;
B.
Depreciable amount of leased asset/Lease term;
C.
Total of minimum lease payments/Lease term;
D.
Useful life of leased asset/Total of minimum lease payments.


11.
The following lease details relate to a finance lease arrangement between Crebarn (the lessor) and Balwane (the lessee). The lease term is 3 years; 3 lease payments of $60,000 each are to be made annually in advance; a guaranteed residual of $40,000 is payable at the end of the lease term; the implicit interest rate is 13%. The present value of the lease liability is:
A.
$220,000;
B.
$191,400;
C.
$187,808;
D.
$180,000.


12.
The following information relates to a lease between Canneries Limited (lessor) and Fruiterers Limited (lessee). 3 lease payments of $20,000 each are made annually in advance and a final lease payment of $15,000 is made at the end of the 3 year lease term. The implicit interest rate is 10%. The amount of the interest expense that is recognised in the first year of the lease is:
A.
$15,402;
B.
$4,598;
C.
$6,598;
D.
$7,500.


13.
The following information relates to a lease between Courtney Limited (lessor) and Jarrod Limited (lessee). 3 lease payments of $20,000 each are made annually in advance and a final lease payment of $15,000 is made at the end of the 3 year lease term. The implicit interest rate is 10%. The total amount of the minimum lease payments is:
A.
$45,980;
B.
$60,000;
C.
$65,980;
D.
$75,000.


14.
For the purposes of disclosure of finance leases in the external financial reports of lessees a reconciliation is provided between:
A.
contingent rents and executory costs;
B.
total future minimum lease payments and present value of the minimum lease payments;
C.
gross investment in the lease and total future minimum lease revenues;
D.
earned and unearned finance income.


15.
Which of the following is an appropriate journal entry for the initial recognition by a lessor of a finance lease arrangement?
A.
DR
Lease receivable
CR
Lease liability
 
B.
DR
Leased asset
CR
Cash/Accounts payable
 
C.
DR
Lease receivable
CR
Asset
 
D.
DR
Leased asset
CR
Cash



16.
When accounting for a finance lease, a lessor must disclose:
A.
unguaranteed residual values of finance leases;
B.
the carrying amount of each class of leased asset at balance date;
C.
contingent rents recognised as an expense in the period;
D.
a reconciliation between total future MLP and the PV of MLP at balance date;


17.
Which of the following is an appropriate journal entry for the initial recognition by a lessee of an operating lease arrangement?
A.
DR
Leased asset
CR
Lease liability
 
B.
DR
Leased asset
CR
Cash/Accounts payable
 
C.
DR
Lease rental expense
CR
Cash/Accounts payable
 
D.
DR
Lease asset
CR
Lease interest expense
 


18.
Assets that are leased under an operating lease should be:
A.
depreciated by the lessee over the economic life of the asset;
B.
recognised by the lessee as an asset and depreciated according to the pattern of economic benefits from use;
C.
regarded as an operating activity by lessees and lease payments charged to profit and loss on a systematic basis;
D.
recognised as an unidentifiable intangible asset and tested annually for impairment.


19.
In respect to finance leases, the term 'capitalisation' means to:
A.
construct an asset for future leasing to a lessee;
B.
recognise a leased item as an asset and a related liability;
C.
charge a leased item as a revenue and an expense in profit and loss at the inception date of the lease;
D.
issue new leases to the public.


20.
A sale and leaseback transaction involves the sale of an asset that is then leased back to the:
A.
acquiring entity;
B.
lessor;
C.
original owner;
D.
purchaser.


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