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A lease is classified as financial because it meets the criteria that the term of the lease is more than 75% of the life of the leased asset. For how long should that asset be amortized?
A) The term of the lease
B) An average of the useful life and term of the lease
C) It is not amortized because it is not the owner
D) The useful life.
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Solved in 3 steps
- For which of the following conditions will the lessor classify a lease as a sales-type lease? a.The leased asset may be exchanged for a similar asset during the lease term. b.The present value of the sum of the lease payments is equal to or more than the fair value of the underlying asset. c.The lease term is less than one year. d.The lease term is half of the underlying asset’s economic life.For which of the following conditions will the lessor classify a lease as a sales-type lease? A. The present value of the sum of the lease payments is equal to or more than the fair value of the underlying asset. B. The lease term is half of the underlying asset's economic life. C.The lease term is less than one year. D. The leased asset may be exchanged for a similar asset during the lease term.The appropriate asset value reported in the balance sheet by the lessee for an operating lease is: Multiple Choice Sum of the lease payments. The lessor's book value of the asset at the beginning of the lease. Present value of the lease payments. Zero, unless a prepayment or accrual is involved.
- Initially, a lease liability is measured a. by the lessee at the present value of the lease payments that are not paid at the commencement date of the lease. b. by the lessor at the present value of the total lease payments payable at the commencement date of the lease. c. by the lessor at the total cost of the right-of-use asset. d. by the lessee at the total cost of the right-of-use asset.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…Which one of the following would normally lead to a lease being classified as an operating lease? a. The lease term is for a period of more than half of the expected economic life of the underlying asset. b. At the inception date of the lease agreement, the present value of the total lease payments is for an amount substantially less than the fair value of the underlying asset. c. The lease is cancellable, and all losses associated with the cancellation will be incurred by the lessee. d. It is reasonably certain at the inception date that the lessee will exercise an option to purchase the underlying asset at the end of the lease term for a price substantially lower than its expected fair value.
- Which of the following is a criterion for classifying a lease for a lessee as a finance lease? The lease term is for a major part of the asset’s economic life. The lease transfers ownership of the asset to the lessee at the end of the lease term. The present value of the lease payments equals or exceeds substantially the asset’s fair value. All of the above.When a lease transfers ownership to the lessee by the end of the lease term, the underlying asset is depreciated A. Over the useful life of the asset B. Over the lease term C. Over the useful life of the asset or lease term whichever is shorter D. Not depreciatedThe residual value is the estimated fair value of the leased property at the end of the lease term. a. Of what significance is (1) an unguaranteed and (2) a guaranteed residual value in the lessee's accounting for a finance lease transaction? b. Distinguish between lease payments used to determine lease classification compared to lease payments for measuring the lease liability.
- The lessee normally measures the lease liability to be recorded as the: Select one: a. Present value of the minimum lease payments. b. The future value of the minimum lease payments c. The fair market value of the leased asset. d. The sum of the cash payments over the term of the lease.In an operating lease, the: Multiple Choice lessor records interest revenue. lessee records an asset and a liability for the present value of lease payments. lessor records a receivable for the present value of lease payments. lessee records an asset and a liability for the total of the lease payments.Which of the following statements is correct related to lease? a. The leased asset is depreciated over the asset's useful life or lease term whichever is higher. b. The leased asset is depreciated over the asset's useful life. c. The leased asset is recorded using the higher amount between fair value of the asset and present value of the minimum lease payments. d. Under IFRS 16 a lease is defined as ‘a contract that conveys the right to use an asset for a period of time in exchange for consideration'.