When a company sells property and then leases it back, any gain on the sale should usually be

When a company sells property and then leases it back, any gain on the sale should usually be

a. recognized in the current year.
b. recognized as a prior period adjustment.
c. recognized at the end of the lease.
d. deferred and recognized as income over the term of the lease.

Answer: D

In a sale-leaseback transaction where none of the four leasing criteria are satisfied, which of the following is false?

In a sale-leaseback transaction where none of the four leasing criteria are satisfied, which of the following is false?

a. The seller-lessee removes the asset from its books.
b. The purchaser-lessor records a gain.
c. The seller-lessee records the lease as an operating lease.
d. All of the above are false statements.

Answer: B

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?

a. Lessee uses a higher interest rate than that used by lessor.
b. Set the lease term at something less than 75% of the estimated useful life of the property.
c. Write in a bargain purchase option.
d. Use a third party to guarantee the asset's residual value.

Answer: C

The Lease Liability account should be disclosed as

The Lease Liability account should be disclosed as

a. all current liabilities.
b. all noncurrent liabilities.
c. current portions in current liabilities and the remainder in noncurrent liabilities.
d. deferred credits.

Answer: C

Which of the following statements is correct?

Which of the following statements is correct?

a. In a direct-financing lease, initial direct costs are added to the net investment in the lease.
b. In a sales-type lease, initial direct costs are expensed in the year of incurrence.
c. For operating leases, initial direct costs are deferred and allocated over the lease term.
d. All of these.

Answer: D

For a sales-type lease,

For a sales-type lease,

a. the sales price includes the present value of the unguaranteed residual value.
b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold.
c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed.
d. none of these

Answer: C