D105 - Intermediate Accounting III

Question 21: Which Test is Not Used for Lease Classification?

Purchase Option Test

Alternative Use Test

Transfer of Ownership Test

Present Value of Payments Test

Question 22: What Happens When a Lessor Increases the Residual Value of a Lease?

The lease liability is reduced

The lessor's receivable increases

The lessees right-of-use asset decreases

The unguaranteed residual value is excluded from the receivable

Question 23: In a Finance Lease, How Should the Lessee Record the Accrual of Interest Expense?

Debit Lease Liability, Credit Interest Expense

Debit Interest Expense, Credit Lease Liability

Debit Lease Liability, Credit Cash

Debit Right-of-Use Asset, Credit Interest Expense

Question 24: What is the Right-of-Use Asset Depreciation Method in an Operating Lease?

Double-declining method

Units of production method

No depreciation is recorded for operating leases

Straight-line method over the lease term

Question 25: What Happens if a Lessees Lease Payments Include a Variable Payment?

The lease liability increases by the amount of the variable payment

The variable payment is excluded from the lease liability

The variable payment reduces the right-of-use asset

The variable payment is recorded as lease revenue

Question 26: A lessor leases a piece of equipment to a lessee, under lease terms that qualify as an operating lease. The lease terms call for total cash rental payments over the life of the lease of $200,000. The present value of those rental payments is $160,000. The estimated residual value of the leased asset is $20,000. The present value of the residual is $16,000. Which amount of lease receivable, if any, should the lessor record?

$160,000

$200,000

$16,000

$0

Question 27: For a lessee with a finance lease containing a bargain purchase option, what is the lease asset depreciated over?

The lease term

The asset's remaining economic life

The lease payment period

The shorter of the asset's life or lease term

Question 28: Metcalf Company leases a machine from Vollmer Corp. under an agreement that 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 $170,000 for six years at 8% is $848,761. The present value of an annuity due of $170,000 for six years at 10% is $814,435. The present value of an annuity due of $145,000 for six years at 8% is $723,943. The present value of an annuity due of $145,000 for six years at 10% is $694,664. At which value should Metcalf record the leased asset?

$848,761

$814,435

$723,943

$694,664

Question 29: Company A leases cars from Company B for their salespeople. The leases are for three years. Company A paid a commission to a third party for helping to negotiate the leases from Company B. How should Company A account for this commission?

Expense the commission immediately

Exclude it from the lease liability

Include the commission in the amount for the right-of-use asset but not in the lease liability

Recognize the commission as deferred revenue

Question 30: Company A leases computers from Company B with annual payments of $6,469. The leases are for two years, and the computers have an economic life of three years. At the end of the lease, the computers are expected to have a residual value of $5,000. Company A has an option to purchase the computers for $2,000 at the end of the lease agreement, which it expects to do. The fair value of the lease is $15,000, and the present value of the lease is $12,689. The present value of the option to purchase the computers is $1,849. How should Company A account for the amortization of the computers due to the bargain purchase option?

It should amortize $14,538 using the economic life of the computers

It should amortize $15,000 using the lease term

It should amortize $12,689 using the lease term

It should expense the computers immediately

Question 31: Which two finance lease elements are a part of each lease payment?

Interest expense and depreciation expense

Amortization expense and interest expense

Lease liability and right-of-use asset

A reduction of the lease liability and the financing cost (interest expense)

Question 32: Does the lessor recognize a lease receivable under an operating lease?

Yes

No

-

Question 33: When should guaranteed residual value be ignored?

When the lease term is less than one year

When the present value of payments is higher than the guaranteed residual

When the estimated fair value at the end of the lease is greater than the guaranteed residual value

When the lease is classified as an operating lease

Question 34: The general requirement for changes in accounting principle is what?

Retrospective application

Prospective application

Adjust the current year only

No adjustment needed

Question 35: Companies report changes in estimates how?

Retrospectively

Prospectively

Adjust all prior periods

Record as an irregular item

Question 36: On December 31, 2020, Paiva Inc. appropriately changed its inventory valuation method to weighted-average cost from FIFO cost for financial statement purposes. The change will result in a decrease in the inventory account at January 1, 2020. The amount of the change, net of tax is, $1,480,000 (all tax effects should be ignored). Where should the cumulative effect of this accounting change be reported by Paiva Inc. in 2020?

On the income statement as an extraordinary item

As a footnote to the financial statements

Retained earnings statement as a $1,480,000 deduction from the beginning balance

As a prior period adjustment on the balance sheet

Question 37: Which disclosure is required for a change from sum-of-the-years-digits to straight-line depreciation method?

Restate prior financial statements

Recompute depreciation for future periods only

Recomputation of current and future years' depreciation

Disclose only in the footnotes

Question 38: Which approach does the FASB require when accounting for changes in accounting principle?

Prospective

Retrospective

Cumulative adjustment in the current year

No adjustment required

Question 39: Correction of errors should be treated as prior period adjustments and recorded when?

In the year the error is discovered

At the beginning of the next fiscal year

In the first available financial statement

After adjusting all future periods

Question 40: A company should restate prior statements affected by errors when?

When presenting comparative statements

Only if errors are material

At the end of the current fiscal year

Only in the footnotes

D105 Intermediate Accounting III - Set 4 - Part 2