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Chapter 21 DONE - Chapter 21 T1 Leasing equipment reduces...

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Chapter 21 T1. Leasing equipment reduces the risk of obsolescence to the lessee, and passes the risk of residual value to the lessor. F2. The FASB agrees with the capitalization approach and requires companies to capitalize all long-term leases. F3. A lease that contains a purchase option must be capitalized by the lessee. T4. Executory costs should be excluded by the lessee in computing the present value of the minimum lease payments. F5. A capitalized leased asset is always depreciated over the term of the lease by the lessee. F6. A lessee records interest expense in both a capital lease and an operating lease. T7. A benefit of leasing to the lessor is the return of the leased property at the end of the lease term. F8. The distinction between a direct-financing lease and a sales-type lease is the presence or absence of a transfer of title. F9. Lessors classify and account for all leases that don’t qualify as sales-type leases as operating leases. T10. Direct-financing leases are in substance the financing of an asset purchase by the lessee. F11. Under the operating method, the lessor records each rental receipt as part interest revenue and part rental revenue. F12. In computing the annual lease payments, the lessor deducts only a guaranteed residual value from the fair market value of a leased asset. T13. When the lessee agrees to make up any deficiency below a stated amount that the lessor realizes in residual value, that stated amount is the guaranteed residual value. F14. Both a guaranteed and an unguaranteed residual value affect the lessee’s computation of amounts capitalized as a leased asset. T15. From the lessee’s viewpoint, an unguaranteed residual value is the same as no residual value in terms of computing the minimum lease payments. F16. The lessor will recover a greater net investment if the residual value is guaranteed instead of unguaranteed. T17. The primary difference between a direct-financing lease and a sales-type lease is the manufacturer’s or dealer’s gross profit. F18. The gross profit amount in a sales-type lease is greater when a guaranteed residual value exists. Accounting for Leases T19. Companies must periodically review the estimated unguaranteed residual value in a sales-type lease. T20. The FASB requires lessees and lessors to disclose certain information about leases in their financial statements or in the notes. 21. Major reasons why a company may become involved in leasing to other companies is (are) d. all of these. 22. Which of the following is an advantage of leasing? d. All of these 23. Which of the following best describes current practice in accounting for leases? b. Leases similar to installment purchases are capitalized. 24. While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that a c. a lease reflects the purchase or sale of a quantifiable right to the use of property.
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