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- What is the basic difference between the accounting procedures used by a lessor for a sales-type lease and those used for a direct-financing lease?What is a substitution right, and when does that right result in a contract not being a lease?In our Anderson Company example, we assumed that the lease could notbe canceled. What effect would a cancellation clause have on the lessee’sanalysis? On the lessor’s analysis?
- One of the following statements is false: a. If the underlying asset will not revert to the lessor, the residual value is simply ignored by the lessor in the computation of unearned interest income and gross profit on the sale. b. The underlying asset will remain with the lessee if the lease provides for either a purchase option that is reasonably to be exercised or transfer of title to the lessee upon the lease expiration. c. When a lessor actually sells an asset that it has been leasing, the difference between the sales price and the carrying amount of the lease receivable is recognized in profit or loss. d. The gain or loss that pertains to the right retained by the seller-lessee in a sales and leaseback transaction is not recognized.The lessor recognizes a loss on finance lease when the fair value of the leased asset is _______ than the _________ residual value. lower; guaranteed lower; unguaranteed higher; guaranteed higher; unguaranteedThe lessor recognizes a loss on finance lease when the fair value of the leased asset is _______ than the _________ residual value. A)higher; guaranteed B)lower; guaranteed C)lower; unguaranteed D)higher; unguaranteed
- 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.Under an operating lease, the lessor recognizes a ____________ when the cumulative rental income is lower than the aggregate rental collections.Which of the following statements are false under a sale a leaseback transaction? I. If a sale and leaseback transactions results in a finance lease, any excess of proceeds over the carrying amount shall not be immediately recognized as income by a seller-lessee. Instead, it shall be deferred and amortized over the lease term. II. If the sale price is established at fair value under an operating lease, any gain or loss shall be deferred and amortized over the period which the asset is expected to be used. I only II ONLY BOTH I AND II NEITHER I OR II
- True or False Lease payments are paid by the lessor.Of what significance is (a) an unguaranteed and (b) a guaranteed residual value in the lessor's accounting for a sales-type lease transaction?Ch19-1: Is leasing a zero sum game in the sense that any gain to the lessee is a cost to the lessor? If not, how might both parties gain from a lease transaction? In your answer, explain how lessee and the lessor analyze the situation, why they might use different inputs in their analysis, and how those inputs differences could affect the outcome