Accounting 304 Leases Questions and Answers |Verified !
Which of the following amortization policies is correct for a capital lease of both land and buildings that
transfers title or contains a bargain purchase option? - Answer - An amount is assigned to Leased
Buildings that is depreciated over the expected economic life of the asset, and the amount assigned to
Leased Land is not depreciated.
On January 1, 2014, Madison Company signed a four-year lease requiring annual payments of $15,000
with the first payment due on January 1, 2014. The fair value of the equipment leased was $50,000.
Madison's incremental borrowing rate was 6%. Actuarial information for 6% follows:
3 Periods
4 Periods
5 Periods
Present value of annuity due of $1
2.83339
3.67301
4.46511
Present value of ordinary annuity of $1
2.67301
3.46511
4.21236
Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment
under capital leases on January 1, 2014 (rounded to the nearest dollar)? - Answer - $50,000
On January 1, 2014, Donna Company leased equipment by signing a five-year lease that required five
payments of $30,000 due on December 31 of each year. The equipment remains the property of the
lessor at the end of the lease, and Donna does not guarantee any residual value. Using a rate of 8%,
Donna capitalized the lease on January 1, 2014, in the amount of $119,781. What is the amount of
interest expense Donna should report on its 2015 income statement? - Answer - $ 7,949
, Which of the following items should be included in the calculation of the lessor's gross receivable?
Periodic Lease Executory Costs Unguaranteed
Rental Payments Paid by Lessee Residual Value
I. Yes Yes Yes
II. Yes Yes No
III. Yes No No
IV. Yes No Yes - Answer - IV
On January 1, 2014, Mark Company leased equipment by signing a five-year lease that required five
payments of $85,000 due on December 31 of each year. The equipment remains the property of the
lessor at the end of the lease, and Mark does not guarantee any residual value. Using a rate of 11%,
Mark capitalized the lease on January 1, 2014, in the amount of $314,152. What is the amount of the
lease obligation on December 31, 2015? - Answer - $207,717
The Baltimore, Inc. entered into a five-year lease with the Waugh Chapel Company on January 1, 2014.
Baltimore, the lessor, will require that five equal annual payments of $25,000 be made at the beginning
of each year. The first payment will be made on January 1, 2014. The lease contains a bargain purchase
option price of $12,000, which the lessee may exercise on December 31, 2018. The lessee pays all
executory costs. The cost of the leased property and its normal selling price are $95,000 and $118,236,
respectively. Collectibility of the future lease payments is reasonably assured, and the lessor does not
expect to incur any future costs related to the lease. Present value factors for a 7% interest rate are as
follows:
Present value of $1 for n = 1
0.934579
Present value of $1 for n = 5
0.712986
Present value of an ordinary annuity for n = 5
4.100197
Present value of an annuity due for n = 5
4.387211
Which of the following amortization policies is correct for a capital lease of both land and buildings that
transfers title or contains a bargain purchase option? - Answer - An amount is assigned to Leased
Buildings that is depreciated over the expected economic life of the asset, and the amount assigned to
Leased Land is not depreciated.
On January 1, 2014, Madison Company signed a four-year lease requiring annual payments of $15,000
with the first payment due on January 1, 2014. The fair value of the equipment leased was $50,000.
Madison's incremental borrowing rate was 6%. Actuarial information for 6% follows:
3 Periods
4 Periods
5 Periods
Present value of annuity due of $1
2.83339
3.67301
4.46511
Present value of ordinary annuity of $1
2.67301
3.46511
4.21236
Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment
under capital leases on January 1, 2014 (rounded to the nearest dollar)? - Answer - $50,000
On January 1, 2014, Donna Company leased equipment by signing a five-year lease that required five
payments of $30,000 due on December 31 of each year. The equipment remains the property of the
lessor at the end of the lease, and Donna does not guarantee any residual value. Using a rate of 8%,
Donna capitalized the lease on January 1, 2014, in the amount of $119,781. What is the amount of
interest expense Donna should report on its 2015 income statement? - Answer - $ 7,949
, Which of the following items should be included in the calculation of the lessor's gross receivable?
Periodic Lease Executory Costs Unguaranteed
Rental Payments Paid by Lessee Residual Value
I. Yes Yes Yes
II. Yes Yes No
III. Yes No No
IV. Yes No Yes - Answer - IV
On January 1, 2014, Mark Company leased equipment by signing a five-year lease that required five
payments of $85,000 due on December 31 of each year. The equipment remains the property of the
lessor at the end of the lease, and Mark does not guarantee any residual value. Using a rate of 11%,
Mark capitalized the lease on January 1, 2014, in the amount of $314,152. What is the amount of the
lease obligation on December 31, 2015? - Answer - $207,717
The Baltimore, Inc. entered into a five-year lease with the Waugh Chapel Company on January 1, 2014.
Baltimore, the lessor, will require that five equal annual payments of $25,000 be made at the beginning
of each year. The first payment will be made on January 1, 2014. The lease contains a bargain purchase
option price of $12,000, which the lessee may exercise on December 31, 2018. The lessee pays all
executory costs. The cost of the leased property and its normal selling price are $95,000 and $118,236,
respectively. Collectibility of the future lease payments is reasonably assured, and the lessor does not
expect to incur any future costs related to the lease. Present value factors for a 7% interest rate are as
follows:
Present value of $1 for n = 1
0.934579
Present value of $1 for n = 5
0.712986
Present value of an ordinary annuity for n = 5
4.100197
Present value of an annuity due for n = 5
4.387211
