Final - ACCT 201B

1. 1The classifications of a lease by the lessee are

   1. Aoperating and finance leases
   2. Boperating, sales, and finance leases
   3. Coperating and leveraged leases
   4. DNone of these answers are correct.
2. 2Which of the following would be included in the Lease Receivable account?
   I. Guaranteed residual value.
   II. Unguaranteed residual value.
   III. Executory costs
   IV. Rental payments.
   

   1. AI and III only.
   2. BII, III, and IV.
   3. CI and II only.
   4. DI, II, and IV.
3. 3.

   

   1. A$80,000
   2. B$85,333
   3. C$165,333
   4. D$640,000
4. 4On January 1, 2021, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $220,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%. With respect to this lease, Dean should record for 2021

   1. Alease expense of $220,000.
   2. Binterest expense of $89,468 and depreciation expense of $76,136.
   3. Cinterest expense of $107,361 and depreciation expense of $89,468.
   4. Dinterest expense of $91,363 and depreciation expense of $134,202
5. 5Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Metcalf. The six-year lease requires payment of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at

   1. A$848,761
   2. B$814,435.
   3. C$723,943.
   4. D$694,665.
6. 6On December 31, 2021, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2029. Equal annual payments of $500,000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Lang ‘s books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 10% is $2,934,213. Assuming all payments are made on time, the amount that should be reported by Lang Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is

   1. A$2,727,635.
   2. B$2,500,397.
   3. C$2,177,634
   4. D$3,000,000.
7. 7On January 1, 2021, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $200,000 at the beginning of each year for five years beginning on January 1, 2021 with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%.
   
   In 2021, Sauder should record interest expense of
   

   1. A$63,397
   2. B$116,604.
   3. C$83,396.
   4. D$136,604.
8. 8On January 1, 2021, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%.
   
   With respect to this lease, for 2021 Ogleby should record
   

   1. Arent expense of $180,000.
   2. Binterest expense of $57,058 and amortization expense of $150,116.
   3. Cinterest expense of $57,058 and amortization expense of $107,225.
   4. Dinterest expense of $90,000 and amortization expense of $181,956.
9. 9Assuming that this lease is properly classified as a finance lease, what is the amount of Lease Liability reduction recorded in first year after the lease inception.

   

   1. A$344,152
   2. B$245,666
   3. C$252,960
   4. D$273,199
10. 10What is the amount of amortization expense recorded by Pisa, Inc. in the first year of the asset’s life?

    

    1. A$0 because the asset is amortized by Tower Company.
    2. B$284,968
    3. C$307,767
    4. D$300,000

11. 11What is the amount of interest expense recorded by Silver Point Co. for the year ended December 31, 2021?

    

    1. A$70,200
    2. B$56,160
    3. C$62,400
    4. D$78,000
12. 12Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2021 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments of $175,820 at the end of each year. The equipment has an expected useful life of 5 years. Silver Point’s incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the book value of the leased asset at December 31, 2021?

    1. A$780,000
    2. B$624,000
    3. C$468,000
    4. D$499,200
13. 13what are the equal annual payments?

    

    1. A$175,820
    2. B$162,795
    3. C$181,972
    4. D$195,356
14. 14What type of lease is this from Alt Corporation’s viewpoint?

    

    1. AOperating lease
    2. BFinance lease
    3. CSales-type lease
    4. DDirect-financing lease
15. 15If Alt accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2021?

    

    1. AAmortization Expense
    2. BLease Expense
    3. CInterest Expense
    4. DAmortization Expense and Interest Expense
16. 16If the present value of the future lease payments is $1,600,000 at January 1, 2021, what is the amount of the reduction in the lease liability for Alt Corp. in the second full year of the lease if Alt Corp. accounts for the lease as a finance lease? (Rounded to the nearest dollar.)

    

    1. A$414,852
    2. B$446,852
    3. C$472,350
    4. D$456,350
17. 17From the viewpoint of Yates, what type of lease agreement exists?

    

    1. AOperating lease
    2. BFinance lease
    3. CSales-type lease
    4. DDirect-financing lease
18. 18If Yates records this lease as a direct-financing lease, what amount would be recorded as Lease Receivable at the inception of the lease?

    

    1. A$574,864
    2. B$1,572,563
    3. C$1,600,000
    4. D$1,724,592
19. 19Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?

    

    1. ALease Revenue only
    2. BInterest Revenue only
    3. CDepreciation Expense only
    4. DLease Revenue and Depreciation Expense
20. 20Hook Company leased equipment to Emley Company on July 1, 2020, for a one-year period expiring June 30, 2021, for $80,000 a month. On July 1, 2021, Hook leased this piece of equipment to Terry Company for a three-year period expiring June 30, 2024, for $100,000 a month. The original cost of the equipment was $6,400,000. The equipment, which has been continually on lease since July 1, 2016, is being depreciated on a straight-line basis over an eight-year period with no salvage value. Assuming that both the lease to Emley and the lease to Terry are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2021?
    Hook Emley Terry

    1. A$280,000 $(480,000) $(600,000)
    2. B$280,000 $(480,000) $(1,000,000)
    3. C$1,080,000 $(80,000) $(200,000)
    4. D$1,080,000 $(880,000) $(600,000)
21. 21Lease 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?
    
    Lease A Lease B

    1. AOperating lease Finance lease
    2. BOperating lease Operating lease
    3. CFinance lease Finance lease
    4. DFinance lease Operating lease
22. 22On December 31, 2021, Burton, Inc. leased machinery with a fair value of $1,575,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $300,000 beginning December 31, 2021. The lease is appropriately accounted for by Burton as a finance lease. Burton’s incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%.
    --- The present value of an annuity due of 1 for 6 years at 10% is 4.7908.
    
    ---The present value of an annuity due of 1 for 6 years at 11% is 4.6959.
    
    In its December 31, 2021 balance sheet, Burton should report a lease liability of
    

    1. A$1,137,240.
    2. B$1,275,000.
    3. C$1,408,770.
    4. D$1,437,240.
23. 23On December 31, 2021, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $2,100,000 (including $100,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2021, and the second payment was made on December 31, 2022. The five lease payments are discounted at 10% over the lease term. The present value of lease payments at the inception of the lease and before the first annual payment was $8,756,727. The lease is appropriately accounted for as a finance lease by Harris. In its December 31, 2022 balance sheet, Harris should report a lease liability of

    1. A$6,340,000
    2. B$6,240,000.
    3. C$5,706,000.
    4. D$5,222,400.
24. 24A lessee had a ten-year finance lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal

    1. Athe current liability shown for the lease at the end of year 1.
    2. Bthe current liability shown for the lease at the end of year 2.
    3. Cthe reduction of the lease liability in year 1.
    4. Done-tenth of the original lease liability.
25. 25On January 2, 2021, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%.
    
    In its 2021 income statement, what amount of interest expense should Hernandez report from this lease transaction?
    

    1. A$0
    2. B$135,000
    3. C$150,000
    4. D$180,000
26. 26On January 2, 2021, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%.
    
    In its 2021 income statement, what amount of amortization expense should Hernandez report from this lease transaction?
    

    1. A$300,000
    2. B$240,000
    3. C$180,000
    4. D$120,000
27. 27In a lease that is recorded as a sales-type lease by the lessor, interest revenue

    1. Ashould be recognized in full as revenue at the lease’s inception.
    2. Bshould be recognized over the period of the lease using the straight-line method.
    3. Cshould be recognized over the period of the lease using the effective interest method.
    4. Ddoes not arise.
28. 28Torrey Co. manufactures equipment that is sold or leased. On December 31, 2021, Torrey leased equipment to Dalton for a five-year period ending December 31, 2026, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1,100,000 (including $100,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2021. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is $3,850,000, and cost is $3,000,000. For the year ended December 31, 2021, what amount of income should Torrey realize from the lease transaction?

    1. A$850,000
    2. B$1,100,000
    3. C$1,150,000
    4. D$1,650,000
29. 29Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a finance lease. At the time of the sale, the gain should be reported as

    1. Aa deferred gain
    2. Bcomprehensive income net of income tax
    3. Ca separate component of stockholders’ equity.
    4. Doperating income.
30. 30Farm Co. leased equipment to Union Co. on July 1, 2021, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year of the lease term was received and recorded on July 3, 2021. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 2021 income statement?

    1. A$0
    2. B$5,500
    3. C$5,750
    4. D$6,750

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Test sobre Final - ACCT 201B, creado por Orfa Cartagena el 08/05/2021.

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Orfa Cartagena

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Creado el 8 may 2021 · actualizado el 13 may 2021

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