PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 25, Problem 17PS
Valuing financial leases A lease with a varying rental schedule is known as a structured lease. Try structuring the Greymare Bus Lines lease to increase value to the lessee while preserving the value to the lessor. Assume that Greymare does not pay tax. (Note: In practice, the tax authorities will allow some structuring of rental payments but might be unhappy with some of the schemes you devise.)
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We classify a lease as a finance lease if:
Multiple Choice
the present value of lease payments is less than the asset's book value.
the present value of lease payments is less than the asset's fair value.
the lessee obtains control of the use of the asset.
the usual risks and rewards are retained by the lessor.
Leasing is a popular form of financing because
Group of answer choices
A. the lessee may not be financially able to purchase.
B. the lessor likely has experience with the equipment being leased.
C. all of these options are true.
D. lease provisions are generally less restrictive than a bond indenture.
The lessor would most likely prefer a ________ or ________ lease to an operating lease. Nonoperating lease treatment would permit a financial service company lessor to remove heavy machinery and equipment, jet airlines, oceangoing vessels, and such from its balance sheet and replace it with the ________, a financial asset compatible with the nature of its business. In addition, the nonoperating lease results in the recognition of ________, rather than ________ revenue.
Group of answer choices
standalone; operating; fair value of the leased asset; interest income; rent
direct financing; operating; net investment in the lease; financing income; unearned
standalone price; sales-type; fair value of the leased asset; financing income; unearned
direct financing; sales-type; net investment in the lease; interest income; rent
Chapter 25 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Operating leases Acme has branched out to rentals...Ch. 25 - Prob. 9PSCh. 25 - Prob. 10PSCh. 25 - Technological change and operating leases Look at...
Ch. 25 - Prob. 12PSCh. 25 - Taxes and leasing Look again at the bus lease...Ch. 25 - Taxes and leasing In Section 25-4 we showed that...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Prob. 18PSCh. 25 - Valuing leases The Safety Razor Company has a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 22PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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- Which 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 contractarrow_forwardAssume 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.arrow_forwardWhich 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 IIarrow_forward
- 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.arrow_forwardA lease is an agreement in which the lessor conveys the right to use an asset for an agreed period of time to the lessee in return for a payment or series of payments (IAS 17.4). Because of rapid changes in technologies, most of the production companies involve in the lease contracts rather than of purchasing new machineries. Being the accounting specialization student, how will you support this? Explain any three advantages of this contract with suitable examples.arrow_forwardA mine operating company approaches an Islamic financial firm to obtain lease financing for some large and quite unique equipment. The financial firm is concerned it will not be able to sell the equipment at the end of the lease term. What form of financing should it propose?arrow_forward
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