CF Chap 21

In a direct lease arrangement, the owner of the asset is:

• A) either the lessee or the lessor.
• B) the lessee.
• C) the lessor.
• D) either the lessee or the manufacturer.
• E) the asset's manufacturer.

Which one of these characteristics does not apply to a financial lease?

• A) The lease is usually not fully amortized.
• B) The lessee is responsible for the maintenance of the leased assets.
• C) Generally, the lease cannot be cancelled.
• D) The lessee usually has the right to renew the lease on expiration.
• E) The lessee must pay all the lease payments

If Alby's leases equipment directly from the equipment's manufacturer the lease must be a:

• A) leveraged lease.
• B) sales and leaseback arrangement.
• C) capital lease.
• D) sales-type lease.
• E) bargain lease

An operating lease generally:

• A) has a term that exceeds the economic life of the leased asset.
• B) is fully amortized.
• C) cannot be cancelled.
• D) requires the lessee to return the leased asset to the lessor if the lease is cancelled.
• E) requires the lessee to maintain the leased asset

If the lessor borrows the majority of the purchase price of a leased asset, the lease is called a:

• A) leveraged lease.
• B) sale-and-leaseback arrangement.
• C) capital lease.
• D) nonrecourse lease.
• E) bargain purchase lease.

A financial lease has which one of the following characteristics?

• A) Lessor maintains leased asset
• B) Cost of asset exceeds lease payments
• C) Cancellation clause
• D) Lessor must make all lease payments
• E) Fully amortized

A leveraged lease typically involves a nonrecourse loan which means that in the case of default the:

• A) lease payments go directly to the lender.
• B) the lessee obtains a first lien on the leased assets.
• C) lessor is obligated to fulfill the terms of both the lease and the loan.
• D) lessee assumes the loan obligation in exchange for the title to the leased assets.
• E) lease is automatically cancelled

The city of Plainview sold its maintenance facility in an all-cash transaction and used the proceeds to improve the city's financial position. The city then leased the building from the new owner on a non-cancellable basis. The city will be responsible for the maintenance and upkeep of the facility. These transactions illustrate:

• A) an operating lease.
• B) a leveraged lease.
• C) a sale and leaseback.
• D) a fully amortized lease.
• E) both an operating lease and a sale and leaseback

For accounting purposes, which one of the following conditions would automatically cause a lease to be classified as a capital lease?

• A) The lessee can purchase the asset at fair market value at the end of the lease.
• B) The lease transfers ownership of the asset to the lessee by the end of the lease term.
• C) The lease term equals 60 percent or more of the asset's estimated economic life.
• D) The present value of the lease payments equals 75 percent of the asset's fair market value at lease inception.
• E) The lessor can renew the lease at the end of the lease term

Reed Machinery just signed a capital lease agreement with a present value of $260,000. How would this lease first appear on Reed Machinery's balance sheet?

• A) Capital leases do not appear on the balance sheet.
• B) Assets under capital lease $260,000; Obligations under capital lease $260,000
• C) Assets under capital lease $130,000; Obligations under capital lease $130,000
• D) Assets under capital lease $260,000; Retained earnings committed to leases $260,000
• E) Assets under capital lease $130,000; Retained earnings committed to leases $130,000