1. All of the following are advantages of leasing except:
A.Less costly financing.
B.Off-balance sheet financing.
C.Elimination of the risk of obsolescence.
D.100% financing at fixed rates.


2. Which of the following viewpoints regarding capitalization of leases does the CICA agree with?
A.Do not capitalize any leased assets.
B.Capitalize all long-term leases.
C.Capitalize firm leases where the penalty for nonperformance is substantial.
D.Capitalize leases when risks and rewards of asset ownership are assured.


3. The lessee would classify a lease as a capital lease if the:
A.Lease contains a purchase option.
B.Lease transfers ownership of the asset to the lessor.
C.Lease term is equal to 75% or more of the economic life of the leased asset.
D.Minimum lease payments equal or exceed 90% of the cost of the leased asset.


4. Minimum lease payments include all of the following except:
A.A bargain purchase option.
B.Executory costs.
C.A guaranteed residual value.
D.The minimum rental payments.


5. The lessee records a capital lease as an asset and a liability at the:
A.Present value of the minimum lease payments.
B.Fair market value of the leased asset at the lease inception.
C.Lower of the present value of the minimum lease payments or the fair market value of the leased asset.
D.Total amount of the minimum lease payments.


6. All of the following are differences that occur if a lease is classified as a capital lease instead of an operating lease except:
A.An increase in the amount of reported debt.
B.An increase in the amount of total assets.
C.A lower income early in the life of the lease.
D.A decrease in the amount of total expenses.


7. A lease that involves a manufacturer's or dealer's profit is a (an):
A.Capital lease.
B.Direct financing lease.
C.Operating lease.
D.Sales-type lease.


8. Unearned interest revenue is:
A.The difference between the net investment and the fair value of the property.
B.The difference between the fair market value of the property and the cost of the property.
C.Amortized to revenue over the lease term by using the effective interest method.
D.Recorded in both capital and operating leases.


9. Lease payments receivable includes all of the following except:
A.A bargain purchase option.
B.A penalty for failure to renew.
C.Unguaranteed residual value.
D.All of the options are included.


10. The lessor's net investment in a direct financing lease is the:
A.Cost of the leased asset less the asset's guaranteed residual value.
B.Cost of the leased asset less the asset's unguaranteed residual value.
C.Present value of the gross lease payments plus the present value of the asset's residual value.
D.Fair market value of the leased asset less the fair value of the asset's residual value.


11. The calculation of the lessee's capitalized amount is the sum of the:
A.Annual rental payments and the guaranteed residual value.
B.Present value of the annual rental payments and the undiscounted guaranteed residual value.
C.Annual rental payments and the present value of the guaranteed residual value.
D.Present value of the annual rental payments and the present value of the guaranteed residual value.


12. The lessor includes the leased asset's residual value in the gross investment if the residual value is:
A.Guaranteed.
B.Unguaranteed.
C.Guaranteed or unguaranteed.
D.Less than the purchase option.


13. Which one of the following amounts would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value?
A.Gross investment.
B.Gross profit.
C.Sales price of the asset.
D.Unearned interest revenue.


14. The lessor expenses initial direct costs in the year of incurrence in a (an):
A.Direct financing lease.
B.Operating lease.
C.Sales-type lease.
D.Direct financing lease and sales-type lease.


15. All of the following are disclosures desirable for the lessor except:
A.The components of the net investment in sales-type and direct financing leases as of each balance sheet date.
B.Future minimum lease payments to be received for each of the five succeeding years.
C.Total contingent rentals included in income for each period for which an income statement is presented.
D.All of the options are required disclosures.



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