D105 Intermediate Accounting III - Set 2 - Part 3

Correct Answer: Interest revenue, tax incentives, and potential for a high residual value

For lessors, leasing provides benefits like interest revenue, potential tax advantages, and the ability to earn more if the leased asset maintains a high residual value.

Correct Answer: Interest and amortization expenses

In a finance lease, the lessee must recognize interest expense on the lease liability and amortization expense on the right-of-use asset over the life of the lease.

Correct Answer: Interest expense and single lease expense

In an Operating Lease, the lessee recognizes interest expense on the lease liability and a single lease expense that combines both interest and amortization of the right-of-use asset.

Correct Answer: When the lease is for more than one year

A lease should be capitalized by the lessor if it exceeds a one-year term, meaning the lessor recognizes a lease receivable and derecognizes the leased asset from its balance sheet.

Correct Answer: By adding the present value of lease payments and guaranteed residual value

The lessor measures the lease receivable by calculating the present value of the lease payments and adding the present value of any guaranteed residual value.

Correct Answer: A lease where the guaranteed residual value is included in both revenues and cost of goods sold (COGS)

In a sales-type lease, the lessor includes the guaranteed residual value when calculating revenues and cost of goods sold, as it affects both cash flows and profit recognition.

Correct Answer: The interest rate a lessee would incur to borrow funds for purchasing the asset

The Incremental Borrowing Rate is the interest rate a lessee would have to pay to borrow the funds necessary to purchase the asset, used when the leases implicit rate is not known.

Correct Answer: Measures of the progress toward completion of a contract based on costs incurred

Input Measures assess the progress toward completion of a contract by comparing the costs incurred to date with the total estimated costs, commonly used in the percentage-of-completion method.

Correct Answer: The amount the lessee guarantees to pay at the end of a lease if the asset is not returned at its expected value

A Guaranteed Residual Value is an obligation by the lessee to pay the lessor if the leased assets value falls below a specified amount at the end of the lease term.

Correct Answer: An account used under the percentage-of-completion method to subtract billings from construction in process

The Billings Account is used under the percentage-of-completion method to ensure that billed amounts are not double-counted in inventory by subtracting them from the construction-in-process account.