Accounting 362-Capital leases are substantially equivalent to installment purchases

Subject: Business    / Accounting
Question

1.

Capital leases are substantially equivalent to installment purchases.

A) True

B) False

2.

Tax incentives often influence leasing decisions.

A) True

B) False

3.

Lease agreements that can’t be cancelled must be capitalized.

A) True

B) False

4.

Minimum lease payments include bargain purchase options.

A) True

B) False

5.

GAAP requires operating leases to be recorded as liabilities.

A) True

B) False

6.

Lease terms should not extend beyond the date a bargain purchase option becomes exercisable.

A) True

B) False

7.

Lessee’s record both an asset and liability at the inception of a capital lease.

A) True

B) False

8.

Sales revenue is never recorded on a direct financing lease.

A) True

B) False

9.

The useful lives of a leasehold improvements can’t be shorter than the lease term itself.

A) True

B) False

10.

Residual values should always be included in minimum lease payment calculations.

A) True

B) False

11.

Operating leases do not affect balance sheets at all.

A) True

B) False

12.

Operating lease payments are reported as cash flows from operating activites.

A) True

B) False

14.

Lease payments made at the beginning of each month would be categorized as annuities due.

A) True

B) False

15.

Initial direct costs include maintenance, taxes, and insurance.

A) True

B) False

16.

Only manufacturers or dealers qualify for sales-type leasing.

A) True

B) False

17.

Losses should not be recognized on sales-type leases.

A) True

B) False

18.

Gross profit should not be recorded on direct financing leases.

A) True

B) False

19.

If a corporation capitalized its operating leases, its debt to equity ratio would rise.

A) True

B) False

21.

If a lease agreement contains an option to renew but renewal is uncertain, the renewal period is ignored.

A) True

B) False

23.

Bargain purchase options increase the recorded value of leased assets.

A) True

B) False

24.

Bargain purchase options reduce lease payment calculations.

A) True

B) False

26.

Residual values can be paid in property or cash but not both.

A) True

B) False

27.

Like any lease payment, bargain purchase options are made up of both principal and interest.

A) True

B) False

28.

When leases are amortized, payment minus interest equals principal.

A) True

B) False

29.

Executory costs should be excluded when calculating minimum lease payments.

A) True

B) False

30.

Consistency is a goal of accounting for leases under US GAAP.

A) True

B) False