29. When a company applies the initial method in accounting for its investment in a subsidiary
and the subsidiary reports income in excess of dividends paid, what entry would be made for a
A. A above
B. B above
C. C above
D. D abo
26. Under the partial equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. The allocations for excess fair value allocations over book value of net assets at d
66. Compute the equity in Vega's income to be included in Green's consolidated income
statement for 2013.
67. One company acquires another company in a combination accounted for as an acquis
33. When consolidating a subsidiary under the equity method, which of the following
statements is true?
A. Goodwill is never recognized.
B. Goodwill required is amortized over 20 years.
C. Goodwill may be recorded on the parent company's books.
D. The val
34. The appropriate asset value reported in the balance sheet by the lessee for an operating lease
A. Present value of the minimum lease payments.
B. Sum of the minimum lease payments.
C. Fair value of the asset at the inception of the lease.
On December 31, 2012, Reagan Inc. signed a lease for some equipment having a nine-year
useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning
at signing date. Title does not transfer to the lessee, so the equipment
40. On January 1, 2013, Wellburn Corporation leased an asset from Tabitha Company. The asset
originally cost Tabitha $300,000. The lease agreement is an operating lease that calls for four
annual payments beginning on January 1, 2013, in the amount of $36
44. What is the effective annual interest rate?
45. What would the lessee record as annual depreciation on the asset using the straight-line
46. What would be the outstand
42. The lessee normally measures the lease liability to be recorded as the:
A. Future value of the minimum lease payments.
B. Sum of the cash payments over the term of the lease.
C. Present value of the minimum lease payments.
D. Fair market value of the
47. What is the total effective interest paid over the term of the lease?
48. What is the outstanding balance after payment 9?
49. When a lease qualifies as a ca
50. For a capital lease, an amount equal to the present value of the minimum lease payments should
be recorded by the lessee as a(n):
A. Asset and a liability.
B. Asset and a different amount should be recorded as a liability.
C. Liability and a different
37. If the lessor records unearned rent at the beginning of a lease term, the lease must:
A. Be a direct financing lease.
B. Be a sales-type lease.
C. Contain a bargain renewal option.
D. Be an operating lease.
38. Prepayments made on an operating lease a
31. At what amount would Reagan record the leased asset at inception of the agreement?
32. What is the effective annual interest rate charged to Reagan on this lease?
Multiple Choice Questions
11. GAAP requires that some lease agreements be accounted for as purchases. The theoretical
justification for this treatment is that a lease of this type:
A. Complies with the concept of form over substance.
B. Reflects the relat
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on
January 1, 2013. The manufacturing cost of the computers was $12 million.
This noncancelable lease had the following terms:
Lease payments: $2,466,754 semiannually;
23. Of the four criteria for a capital lease, which two are not applied if the lease begins during the final
quarter of the asset's useful life?
A. The 75% test and the bargain purchase option.
B. The 90% test and the 75% test.
C. The 90% test is the only
17. Of the four criteria for a capital lease, the one that most often is the decisive criteria is:
A. The 75% of economic life test.
B. The transfer of title.
C. The 90% of fair value test.
D. The bargain purchase option.
18. One of the four criteria for
14. Distinguishing between operating and capital leases is due in large part to the accounting concept
C. Substance over form.
D. Historical cost.
15. When the total expenses over the life of an operating lease are com
27. What is the net carrying value of the lease liability in Lone Star's June 30, 2013, balance sheet?
Round your answer to the nearest dollar.
D. None of the above is correct.
28. What is the interest reven
20. For the lessee to account for a lease as a capital lease, the lease must meet:
A. All four of the criteria specified by GAAP regarding accounting for leases.
B. Any one of the six criteria specified by GAAP regarding accounting for leases.
C. Any two
53. For a leased asset under a lease that qualifies as a capital lease because of a bargain purchase
option, the depreciation period used by the lessee must be:
A. The same period that was used by the lessor.
B. The useful life to the lessee.
C. The term
55. What is the effective annual interest rate?
56. What would the lessee record as annual depreciation on the asset using the straight-line method,
assuming no residual value?
90. J Corp. entered into an operating lease in February. The company's December 31 statement of
cash flows will report:
A. A cash outflow from investing activities.
B. A cash outflow from financing activities.
C. A cash outflow from operating activities.
85. C Corp. has a rate of return on assets of 10%. Not including any indirect effects on earnings, the
rate of return on assets is immediately increased when C records:
A. Option a
B. Option b
C. Option c
D. Option d
86. B Corp. has a debt/equity ratio of
96. Under both U.S. GAAP and IFRS, a lease is a capital lease (called a finance lease under IFRS) if
substantially all risks and rewards of ownership are transferred. In making this determination,
more judgment, and less specificity, is applied using:
87. L Corp. recorded a capital lease in February using an annuity due present value table. The
company's December 31 statement of cash flows using the indirect method will report:
A. An addition to net income for depreciation.
B. A cash inflow from financ
93. On December 31, 2013, B Corp. sold a machine to Royal and simultaneously leased it back for
one year. Pertinent information at this date follows:
In B's December 31, 2013, balance sheet, the deferred revenue from the sale of this machine
102. ed Co. recorded a residual asset of $100,000 in a 10-year lease under which no profit was
recorded at commencement by the lessor. The interest rate charged the lessee was 10%. Under
the new ASU, the balance in the residual asset after two years wil
99. Barr Corp. is the lessee in a lease that contains a purchase option. Under the new ASU, Barr will
consider the exercise price to be an additional cash payment if:
A. Barr has a "significant economic incentive" to exercise the option.
B. The exercise o
104. arla Salons leased equipment from SmithCo on July 1, 2013. The present value of the lease
payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due at
the beginning of each fiscal year beginning July 1, 2013. SmithCo had