Answered: Capitalizing a lease means that the…

Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation true or false explain

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 11Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation true or false explain

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What are the criteria for classifying a lease as operating or capital? Why is there a difference between the two? What are the implications of an operating lease versus a capital lease on an entity’s financial statements?
For companies that prepare their financial statements in accordance with both U.S. GAAP and IFRS, a lease is deemed to be a capital lease (usually called a finance lease under IFRS) if substantially all risks and rewards of ownership are transferred. In making this distinction, less judgment, more specificity is applied using a. IFRS. b. U.S. GAAP. c. Either U.S. GAAP or IFRS. d. Neither U.S. GAAP nor IFRS.
Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.
See attached picture A) What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease.
If a lease term is more than 80% of the asset’s life and the leased property is transferred from the lessor to the lessee, then the lease must be capitalized and disclosed on a firm’s balance sheet. Is the preceding statement true or false? False or True
Which of the following cash flows is classified as an investing cash flow? A. interest portion of payment received under a direct financing lease B. reduction of a direct financing lease receivable C. purchase of an asset leased under a sales-type lease D. payment received under an operating lease
TRUE OR FALSE: in a sales type lease the net investment in the lease is credited to the appropriate asset account. If false, why?
A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. True or false explain
Which of the following statements is characteristic of leases? a.If a lease is classified as an operating lease, the lessee records an asset on its statement of financial position. b.Lease agreements are not a popular form of financing the purchase of assets because leases require a large initial outlay of cash. c.If a lessor classifies a lease as a finance lease, the lessor records a lease liability on its statement of earnings. d.Accounting recognizes two types of leases—operating and finance.
Which of the following is a required financial statement presentation by a lessee for both capital leases and operating lease? A. Amortization Expense and Interest Expense B. Lease Expense C. Right-of-Use Asset and Lease Liability D. The reduction of the Lease Liability as a financing activity
If the gains or losses from the fluctuation in the fair value of the residualaccrue to the lessor, the lease can be classified as a finance lease. Question: True or False
Which of the following statements is true about initial direct costs? A. Initial direct costs of a sales-type lease should be expensed at the commencement of the lease only if no selling profit or loss has been incurred. B. Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes. C. Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset. D. Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.