9.4 Learning Objective 9-4
1) A capital lease requires the lessee to record the lease as a purchase of a plant asset.
2) An operating lease transfers title of the leased asset to the lessee at the end of the lease term.
3) Lease payments are paid by the lessor.
4) Operating leases are preferred over capital leases because capital leases increase a company's debt ratio.
5) Which of the following statements about capital leases is INCORRECT?
A) Under a capital lease, the lessee does not report the leased asset on the financial statements.
B) A capital lease can transfer title of the leased asset to the lessee at the end of the lease term.
C) A capital lease may contain a bargain purchase option.
D) Under a capital lease, the lessee records a lease liability at the beginning of the lease term.
6) If, as part of the accounting for a lease, the lessee debits an asset and credits a liability, then the lease must be a(n):
A) purchased lease.
B) operating lease.
C) cancelable lease.
D) capital lease.
) Which of the following criteria would allow a lease to be recorded as an operating lease?
A) The lease transfers ownership of the property to the lessee.
B) The lease contains a bargain purchase option.
C) The lease term is less than 75% of the useful life of the leased property.
D) The present value of the lease payments equals or exceeds 90% of the fair market value of the leased property.
8) Which of the following statements regarding leases is CORRECT?
A) Capital leases are favored over operating leases.
B) A debit balance in the Leased Asset account on the balance sheet indicates an operating lease.
C) Title is transferred to the lessee at the end of an operating lease term.
D) Operating leases require the lessee to make rent payments.
9) Wayne Technical Corporation signed a lease for equipment, which requires lease payments of $50,000 per year for four years. The equipment has an estimated useful life of 7 years. This lease would be a capital lease if:
A) the equipment is leased for 4 years.
B) the present value of the lease payments equals $150,000 and the fair value of the equipment is $200,000.
C) title to the equipment does not transfer to the lessee at the end of the lease term.
D) the lease agreement allows Wayne to purchase the equipment for $5 at the end of the lease.
10) Which type of lease will NOT increase a company's assets or long-term liabilities?
A) An operating lease.
B) A capital lease.
C) A lease that contains a bargain purchase option.
D) A lease that transfers title of the leased asset to the lessee at the end of the lease term.