Problem 11 – 4 Multiple Choice (IAA)

1 The accounting concept that is principally used to classify lease into operating and
finance is

a. Substance over form

b. Prudence
c. Neutrality
d. Completeness

2. Which o the following is not included in the definition of minimum lease payments?

a. Any payment is required by a bargain purchase option that is reasonably certain

b. Costs for services and taxes to be paid by and reimbursed to the lessor
c. Required payments over the lease term
d Any amounts guaranteed by a party related to the lessee

3. Which one of the following items is not part of the minimum lease payments from
the standpoint of the lessee?

a. The minimum lease payments called for by the lessee

b. Any guarantee the lessee is required to make at the end of the lease term
regarding any deficiency from a specified amount
c. Any estimated residual value at the end of the lease term
d. Any payment the lessee must make at the end of the lease term to purchase the
leased property under a bargain purchase option

4. From the standpoint of the lessee, the minimum lease payments included all of the
following except

a. The guaranteed residual value

b. The lessee’s obligation to pay executor costs
c. The bargain purchase option
d. Any payment that the lessee must make upon failure to extend or renew the lease

5. Which of the following would be considered an executor costs?

a. Minimum lease payment

b. Interest expense incurred
c. Bargain purchase option
d. Maintenance costs
6. One of the four determinative criteria for a finance lease specifies that the lease term
be equal or greater than

a. The estimated economic life of the property

b .90 percent of the estimated life of the property
c. 75 percent of the estimated life of the property
d. 50 percent of the estimated life of the property

7. One of the four determinative criteria of a finance lease is that the present value at
the beginning of the lease term of the minimum lease payments equal or exceeds

a. The property’s fair market value

b. 90 percent of the property’s fair market value
c. 75 percent of the property’s fair market value
d. 50 percent of the property’s fair market value

8. An entity leased a machine having an expected useful life of 12 years. The

noncancealable lease term is 10 years, and the entity may exercise bargain
purchase option at the end of the noncancealable lease term. The machine should be
capitalized by the entity depreciated value

a. 9 years
b.12years
c. 10 years
d. 10 or 12 years at the entity option

9.If the residual value of a leased asset is greater than theamount guaranteed by the
lessee

a. The lessor pays the lessee for the difference

b. The lessee recognizes a gain at the end of the lease term
c. The lessee has no obligation related to the residual value
d. The lessee pays the lessor for the difference

10. Which of the following statements concerning guaranteed residual value is

appropriate for the lessee?

a. The asset and related liability should increased by the absolute amount of the
residual value
b. The asset and related liability should decreased by the absolute amount of the
residual value
c. The asset and related liability should decreased by the present value of the
residual value
d. The asset and related liability should increased by the present value of the
residual value