D105 Intermediate Accounting III - Set 5 - Part 3

Correct Answer: Lease term test

The lease term test checks whether the lease term is a major part (typically 75% or more) of the assets economic life, indicating that the lessee is using most of the asset's useful life.

Correct Answer: Defined contribution plan

In a defined contribution plan, the employer agrees to contribute a specific amount, but the future benefits depend on the plans investment performance.

Correct Answer: Over the lease term

In a sales-type lease, the lessor recognizes interest revenue over the lease term as the lease payments are made.

Correct Answer: Net income is overstated

Failure to record depreciation leads to an understatement of expenses, resulting in overstated net income.

Correct Answer: It is added to the lease receivable

An unguaranteed residual value is included in the lessors lease receivable as it represents an expectation of recovering value from the asset at the end of the lease term.

Correct Answer: At the present value of lease payments

In a finance lease, the lessee records the cost of the leased asset at the present value of the lease payments.

Correct Answer: Debit cash, credit unearned revenue

In an operating lease, the lessor records lease payments as unearned revenue until they are earned over time.

Correct Answer: Exclude from the lease liability but record as an expense when incurred

Variable lease payments based on usage or performance are excluded from the lease liability and are recognized as an expense when incurred.

Correct Answer: Defined contribution plan

In a defined contribution plan, the employee bears the investment risk, as the future benefits depend on the performance of the plans investments.

Correct Answer: Financing activities

Cash inflows from issuing stock are reported in the financing activities section of the statement of cash flows, as they relate to the companys equity financing.