PROBLEM 1: TRUE OR FALS Jeases into a finance lease or an operating lease. control the use of an identified asset for a period of time in exchange for consideration. A lease that covers only the 1ª floor of a 10-storey building cannot qualify for accounting under PFRS 16 because the lessee does not have the right to obtain substantially all of the economic benefits of the entire building. nOenition and measurement approach
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- Use the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the leased property. This lease contains a purchase option that is reasonably expected to be exercised. The lessee should record Lease G as: a. neither an asset nor a liability b. an asset but not a liability c. an expense d. an asset and a liabilityWhich of the following is incorrect regarding the accounting for leases by a lessee? A. A lessee recognizes the same total amount of expense on a lease whether it uses the general recognition or the recognition exemption under PFRS 16. B. The interest expense on a lease liability decreases each period C. According to PFRS 16, executory costs, such as insurance and real property taxes, are always excluded from lease payments regardless of whether these costs transfer goods or services to the leasee. D. A lessee shall allocate the total consideration in a contract to the lease components and non-lease components of the contract
- Answer True or False Initial direct costs are immediately recognized as an expense by the lessor when the cost incurred in conjunction with an operating lease. The lessor uses the implicit interest rate in determining the present value of the lease payments Termination penalties are included in the lease payments if the lease term reflects the lessee exercising an option to terminate the lease. In a sale and leaseback transaction that qualifies as a sale under PFRS 16, the seller-lessee recognized only the amount of any gain or loss that relates to the rights transferred to the buyer-lessorWhich type of lease will not increase a company’s assets or long-term liabilities? Select one: a. A one-year operating lease b. A lease for an asset of a specialized nature with no alternative use at the end of the lease term c. A finance lease d. A lease that transfers ownership of the asset to the lessee by the end of the lease termWhich of the following are not required disclosures for leases under PFRS 16? the expense relating to short-term leases restrictions or covenants imposed by leases the expense relating to variable lease payments not included in the measurement of lease liabilities total cash outflow for leases leases not yet commenced to which the lessee is committed Group of answer choices Only 5. Only 2. Only 2 and 5. All are required to be disclosed.
- 26 If title is not expected to pass to the lessee by the end of the lease term, lease of land is classified asA. operating lease.B. either operating lease or finance lease.C. finance lease.D. neither operating lease nor finance lease.(4) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income A. should be amortized over the period of the lease using the effective interest method. B. should be amortized over the period of the lease using the straight-line method. C. does not arise. D. should be recognized at the lease's expiration. E. None of these answer choices are correct.Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases under U.S. GAAP? Lease A Lease B A.) Operating lease Capital lease B.) Operating lease Operating lease C.) Capital lease Capital lease D.) Capital lease Operating lease
- 2....continues The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. Suppose Splish received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be…2...new...C..continues The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Crane Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. Suppose Crane received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?…t34 Initial direct costs incurred by the lessor in an operating lease should beA. expensed in the year of incurrence by including them in the cost of goods sold or by treating them as a sellingexpense.B. deferred and recognized as reduction in the interest rate implicit in the lease.C. capitalized as part of asset cost and depreciated over the lease term.D. deferred and carried on the statement of financial position until the end of the lease term.