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Current Liabilities Theory
Current Liabilities Theory
c. The net realizable value of the asset at the inception of the lease
d. The present value of the market price of the asset discounted at an appropriate rate
19. The minimum lease payments under a finance lease include all of the following, except
a. Contingent rent and executory costs
b. Periodic rentals over the lease term
c. Any amount guaranteed by the lessee or by a party related to the lessee.
d. Payment required to exercise an option on the part of the lessee to purchase the
asset at a price which is expected to be sufficiently lower than its fair value at the
option exercise date.
20. A lease contains a bargain purchase option. In determining the capitalized cost at the
beginning of the lease term, the payment called for by the bargain option would
a. Not be capitalized c. Be subtracted at its present value
b. Be added at its exercise value d. Be added at its present value
21. At the inception of a capital lease, the guaranteed residual value should be
a. Included as part of minimum lease payments at present value
b. Included as part of minimum lease payments at future value
c. Excluded from minimum lease payments
d. Included as part of minimum lease payments to the extent that the guaranteed
residual value is expected to exceed estimated residual value
22. The lessee’s balance sheet liability for a capital lease would be periodically reduced by
the
a. Minimum lease payment plus the amortization of the related asset
b. Minimum lease payment less the amortization of the related asset
c. Minimum lease payment
d. Minimum lease payment less the portion allocable to interest
23. The depreciable asset recognized by the lessee under a finance lease should be
depreciated over the
a. Useful life of the asset
b. Lease term
c. Useful life of the asset if there is reasonable certainty that the lessee will obtain
ownership by the end of the lease term.
d. Lease term or useful life of the asset, whichever is shorter
24. Under a sales type lease, what is the meaning of “gross investment in the lease” on the
part of the lessor?
a. Present value of minimum lease payments
b. Present value of minimum lease payments and present value of unguaranteed
residual value.
c. Absolute amount of the minimum lease payments
d. Aggregate of minimum lease payments and unguaranteed residual value
25. Net investment in the lease is equal to the
a. Gross investment in the lease less unearned finance income
b. Gross investment in the lease less dealer’s profit
c. Minimum lease payments
d. Minimum lease payments less unguaranteed residual value.
26. What is the treatment of unguaranteed residual value in determining the cost of sales
under a sales type lease?
a. Ignored
b. Added to the cost of the leased asset
c. Deducted from the cost of the leased asset at absolute amount
d. Deducted from the cost of the leased asset at present value
27. Initial direct costs incurred by the lessee in connection with a finance lease are
a. Included as part of the amount recognized as an asset under the lease
b. Expensed immediately
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c. Deferred and amortized over the lease term on a straight line basis.
d. Included in the minimum lease payments at present value.
28. Which statement is correct concerning a finance lease on the part of the lessor?
I. Initial direct costs should be recognized as expense in the income statement at the
inception of a sales type lease.
II. Initial direct costs incurred by the lessor in a direct financing lease are included in
the net investment in the lease and will have the effect of reducing the interest
income from the finance lease.
a. I only b. II only c. Both I and II d. Neither I nor II
29. If the sale and leaseback transaction results in a finance lease, any gain from the sale
and leaseback should
a. Not be recognized
b. Be recognized as income immediately.
c. Be deferred and amortized over the lease term.
d. Be deferred and amortized over the useful life of the asset.
30. ABC Company 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 sale, the gain
should be reported as
a. Operating income
b. An extraordinary item
c. A separate component of stockholders’ equity
d. As asset valuation allowance
31. Under PAS 12, which enterprises are required to report deferred tax asset or liability?
I. Public enterprises II. Nonpublic enterprises
a. I only b. II only c. Both I and II d. Neither I nor II
32. Temporary difference is the
I. Difference between the tax basis of an asset or liability and its reported amount that
will result in taxable or deductible amounts in future years when the reported
amount of the asset or liability is recovered or settled respectively.
II. Item of income or expense which is included in either financial income or taxable
income but will never be included in the other.
a. I only b. II only c. Both I and II d. Neither I nor II
33. Taxable temporary difference is the
I. Temporary difference that will result in taxable amount in determining taxable
income of future periods when the carrying amount of the asset or liability is
recovered or settled.
II. Temporary difference that will result in deductible amount in determining taxable
income of future periods when the carrying amount of the asset or liability is
recovered or settled.
a. I only b. II only c. Both I and II d. Neither I nor II
34. A deferred tax liability is computed using
a. The current tax law, regardless of the enacted future tax law
b. Expected future tax law, regardless of whether this expected law has been enacted
c. Current tax law, unless enacted future tax law is different
d. Either current or expected future law, regardless of whether the expected law has
been enacted
35. It is deferred tax consequence attributable to a taxable temporary difference.
a. Deferred tax liability c. Deferred tax asset
b. Current liability d. Noncurrent deferred tax liability
36. It is deferred tax consequence attributable to a deductible temporary difference and
operating loss carry forward.
a. Deferred tax asset c. Deferred tax liability
b. Current tax asset d. Current tax liability
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37. It is the amount of income tax paid or payable for the year as determined in applying
the provisions of the enacted tax law to the taxable income.
a. Current tax expense c. Deferred tax expense
b. Deferred tax benefit d. Income tax expense
38. It is excess of taxable revenues over tax deductible expenses and exemptions for the
year as defined by the BIR.
a. Pretax financial income c. Financial income subject to tax
b. Gross income d. Taxable income
39. An entity shall offset deferred tax asset and deferred tax liability when
I. The deferred tax asset and deferred tax liability relate to income taxes levied by the
same taxing authority
II. The entity has a legal enforceable right to set off a current tax asset against a
current tax liability.
a. I only b. II only c. Both I and II d. Neither I nor II
41. It is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period.
a. Past service cost c. Current service cost
b. Interest cost d. Current service and interest cost
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