FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The following statements relate to the impact on the financial statements for operating vs. finance leases. Indicate all statements that are correct.
Select one or more:
a. Net Income is higher at first when a lease is classified as a finance lease.
b. The right of use asset is shown at a higher amount for a finance lease.
c. Operating Income is lower when a lease is classified as an operating lease.
d. The lease liability is measured as the present value of future cash flows for both operating and finance leases.
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- Need help with this questionarrow_forwardOn the balance sheet, the lease liability is measured as ________. Group of answer choices the present value of the lease payments less the present value of the guaranteed residual value (if any) the present value of the lease payments plus the future value of the guaranteed residual value (if any) the present value of the lease payments plus the present value of the guaranteed residual value if the lessee guarantees it(if any) the future value of the lease payments plus the future value of the guaranteed residual value (if any)arrow_forwardIn calculating the amortization of a leased asset, the lessee should subtract a Select one: a. guaranteed residual value and amortize over the term of the lease. b. unguaranteed residual value and amortize over the term of the lease. c. guaranteed residual value and amortize over the life of the asset. d. unguaranteed residual value and amortize over the life of the asset. e. None of the above.arrow_forward
- 2 Which statement is correct in comparing capital leases to operating leases? a) A capital lease will have a higher asset turnover compared to an operating lease. b) A capital lease will increase the return on total assets compared to an operating lease. c) A capital lease will have a lower debt-to-equity ratio compared to an operating lease. d) A capital lease will have a higher debt-to-equity ratio compared to an operating lease.arrow_forwardProvide correct answer for this questionarrow_forwardUnder the FASB old lease standard, when management of a company wishes to window-dress, they classify lease as a capital lease rather than operating lease to generally report: 1. Higher cash flow from operations and higher assets. 2. lower cash flow from operations and lower assets. 3. Identical cash flow from operations and the same amount of assets. 4. None of the above.arrow_forward
- What should be the discount rate for capitalizing the operating leases?A. If possible, the implied internal rate of return (IRR) that equates the sum of thediscounted capital lease payments with the reported PV of the payments.B. The effective interest rate (EIR) that represents the average interest rate thatthe company pays on its debt.C. The effective tax rate (ETR) that represents the average tax rate that thecompany pays on its earnings.D. None of the above.arrow_forwardExplain and evaluate the eff ects on financial statements and ratios of finance leases and operating leases from the perspectives of both the lessor and the lessee.arrow_forwardAn Operating Lease will have which of these expenses (may have more than one answer)? Check All That Apply None of these Rental ExpenseRental Expense Depreciation ExpenseDepreciation Expense Interest Expense This question may have more than one answer,arrow_forward
- Please give answer of this questionarrow_forwardExplain the accounting for finance leases.arrow_forwardWhen is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments? A.when the lessee's incremental borrowing rate is lower than the lessor's rate B.whenever the lessee knows what the lessor's rate is C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate D.when the lessor's rate is higher than the lessee's incremental borrowing ratearrow_forward
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