Baa Co. enters into a lease of commercial space. The C8ntract specifies a non-cancellable term of five years and a two-year, market-priced commencement, Baa Co. makes significant leasehold improvements with a useful life of ten years. Baa Co. determines that the economic benefits of the leasehold improvements can only be realized through continued renewal option. Before the lease

Intermediate Accounting: Reporting And Analysis
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Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
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Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...
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9. Baa Co. enters into a lease of commercial space. The contract
specifies a non-cancellable term of five years and a two-year,
market-priced
commencement, Baa Co. makes significant leasehold
improvements with a useful life of ten years. Baa Co.
determines that the economic benefits of the leasehold
renewal option.
Before
the
lease
improvements can only be realized through continued
of the leased property. At lease commencement,
Occupancy
b. 5 years
c. 7 years
d. 10 years
a. 2 years
Which of the following statements is incorrect regarding the
accounting for lease liabilities?
Lease liabilities are subsequently measured at amortized
cost, adjusted for lease modifications and reassessments.
b. Subsequent lease payments are apportioned to both the
interest and the principal balance of the lease liability.
c Periodic interests reflect a varying rate of interest on the
remaining balance of the lease liability.
d. Periodic interests reflect a constant rate of interest on the
remaining balance of the lease liability.
11. A right-of-use asset is initially measured at cost and
subsequently measured using the
a. cost model
b. fair value model
c. revaluation model
d. any of these
12 Which of the following is incorrect regarding the accounting
for leases by a lessee?
a. A lessee recognizes the same total amount of expense on a
lease whether it uses the general recognition or the
recognition exemption under PFRS 16.
0. The interest expense on a lease liability decreases each
period.
C According to PFRS 16, executory costs, such as insurance
and real property taxes, are always excluded from lease
payments regardless of whether these oosts transfer goods
or services to the lessee.
d. A lessee shall allocate the total consideration in a contract
to the lease components and non-lease components of the
contract.
Transcribed Image Text:9. Baa Co. enters into a lease of commercial space. The contract specifies a non-cancellable term of five years and a two-year, market-priced commencement, Baa Co. makes significant leasehold improvements with a useful life of ten years. Baa Co. determines that the economic benefits of the leasehold renewal option. Before the lease improvements can only be realized through continued of the leased property. At lease commencement, Occupancy b. 5 years c. 7 years d. 10 years a. 2 years Which of the following statements is incorrect regarding the accounting for lease liabilities? Lease liabilities are subsequently measured at amortized cost, adjusted for lease modifications and reassessments. b. Subsequent lease payments are apportioned to both the interest and the principal balance of the lease liability. c Periodic interests reflect a varying rate of interest on the remaining balance of the lease liability. d. Periodic interests reflect a constant rate of interest on the remaining balance of the lease liability. 11. A right-of-use asset is initially measured at cost and subsequently measured using the a. cost model b. fair value model c. revaluation model d. any of these 12 Which of the following is incorrect regarding the accounting for leases by a lessee? a. A lessee recognizes the same total amount of expense on a lease whether it uses the general recognition or the recognition exemption under PFRS 16. 0. The interest expense on a lease liability decreases each period. C According to PFRS 16, executory costs, such as insurance and real property taxes, are always excluded from lease payments regardless of whether these oosts transfer goods or services to the lessee. d. A lessee shall allocate the total consideration in a contract to the lease components and non-lease components of the contract.
a. The ownership over the leased asset is expected to be
transferred to the lessee at the end of the lease term, such
asset's residual value when depreciating its right-of-use asset?
as when there is a lease contract contains a purchase
c. The lessee's accounting policy is to depreciate assets using
13. In which of the following would the lessee deduct the leased
annual lease payments. Part of this payment represents
interest and part represents a reduction in the net lease
liability. The portion of the lease payment in the fifth year
applicable to the reduction of the net lease liability should be
17. A six-year lease expiring on December 31 specifies equal
Chapter 7
336
option which the lessee expects to exercise.
b. The residual value is guaranteed by the lessee.
the straight line method.
d. All of these.
14. The discount rate used by the lessee in accounting for leases is
the
a. interest rate implicit in the lease.
b. lessee's incremental borrowing rate of interest.
c. lease contract stated interest rate.
d. Choice (a) if this is determinable, if not then Choice (b).
15. Initial direct costs incurred by a lessee are
a. expensed immediately.
b. capitalized as cost of the right-of-use asset.
c. included in the initial measurement of lease liability.
d. b and c
16. When a lease transfers ownership to the lessee by the end of
the lease term, the underlying asset is depreciated
a. over its useful life.
b. over the lease term.
c. over the shorter of a and b.
d. not depreciated
17. A six-year lease expiring on December 31 specifies equa
a. Less than in the fourth year
b. Less than in the sixth year
c. The same as in sixth year
d. Less than in the fourth year
Transcribed Image Text:a. The ownership over the leased asset is expected to be transferred to the lessee at the end of the lease term, such asset's residual value when depreciating its right-of-use asset? as when there is a lease contract contains a purchase c. The lessee's accounting policy is to depreciate assets using 13. In which of the following would the lessee deduct the leased annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the lease payment in the fifth year applicable to the reduction of the net lease liability should be 17. A six-year lease expiring on December 31 specifies equal Chapter 7 336 option which the lessee expects to exercise. b. The residual value is guaranteed by the lessee. the straight line method. d. All of these. 14. The discount rate used by the lessee in accounting for leases is the a. interest rate implicit in the lease. b. lessee's incremental borrowing rate of interest. c. lease contract stated interest rate. d. Choice (a) if this is determinable, if not then Choice (b). 15. Initial direct costs incurred by a lessee are a. expensed immediately. b. capitalized as cost of the right-of-use asset. c. included in the initial measurement of lease liability. d. b and c 16. When a lease transfers ownership to the lessee by the end of the lease term, the underlying asset is depreciated a. over its useful life. b. over the lease term. c. over the shorter of a and b. d. not depreciated 17. A six-year lease expiring on December 31 specifies equa a. Less than in the fourth year b. Less than in the sixth year c. The same as in sixth year d. Less than in the fourth year
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