lassified as a finance lease or as an operating lease.
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In case of a financial lease only, assets or liabilities are created. In case of operating lease agreement, the expenses incurred as lease rentals are debited as expenses in the income and expenditure account. So, only the financial lease transactions affect the Lessee’s debt to equity ratio.
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- When a lease agreement does not include a guarantee by the lessee that the lessor will recover a specified residual value at the end of the lease term, the lessor still includes an estimate of that residual value in its lease receivable. True or False True FalseIf, 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. finance lease. B. operating lease. C. operating lease or finance lease. D. none of the above. thanks for helpUnder a capital lease: Select one: a. The lessee report assets on balance sheet O b. None of the options c. The lessee report rent expenses on income statement d. The lessor report rent expense on income statement
- 1 ) If a lease does not qualify as an operating lease, how will a lessee classify the lease? (I. O Short Term O Capital O Sales-Type O Financing 1Which of the following are normal characteristics of a financial lease? I. Maintenance of the leased asset is the responsibility of the lessee. II. The lease is generally cancellable by the lessee prior to the expiration date. III. Financial leases are generally fully amortized. IV. The lessee usually has the right to renew the lease at the end of the initial lease period. Select one: O a. I, II, III, and IV O b. I, II, and IV only O c. II, II, and IV only O d. I and Il only Oe. I and II onlyFor a lessor, the leased asset appears on the balance sheet and continues to be depreciatedwhen the lease is classifi ed as:A . a sales-type lease.B . an operating lease.C . a fi nancing lease.
- If a sale and leaseback transaction results in a finance lease, any excess of sale proceeds over the carrying amount shall beI. Recognized immediately as income by the seller-lessee.II. Deferred and amortized as income by the seller-lessee over the lease term. Either I or II II only I only Neither I nor IIA lease qualifies as a finance (sales-type) lease. Indicate an account to be used by the lessee, and an account to be used by the lessor Select one: Account to be used by the lessee Right of Use Asset Account to be used by the lessor Lease Receivable a. Ob. Account to be used by the lessee Unearned Revenue Account to be used by the lessor Sales Revenue Account to be used by the lessee Lease Expense Account to be used by the lessor Interest Revenue d. Account to be used by the lesseO Lease Liability Account to be used by the lessor Amortization Expense Account to be used by the lessee Amortization Expense Account to be used by the lessor Interest Expense e.A lease agreement whereby the lessee recognized rent expense which is always equals to the rent income recognized by the lessor at a given period of time. A. Operating lease B. Finance lease C Terminating lease D. Sale type lease
- (4) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income A. should be amortized over the period of the lease using the effective interest method. B. should be amortized over the period of the lease using the straight-line method. C. does not arise. D. should be recognized at the lease's expiration. E. None of these answer choices are correct.In a financing lease, “front loading” of lease expense and lease revenue occurs. What does this mean, and how is it avoided in an operating lease?Under an operating lease: a) the lessee does not obtain substantially all the benefits and risks of ownership. B) the lease transaction is reported more like a purchase. C) No liability is reported on the balance sheet D) All criteria need to be met to qualify for this classification E) Only one criteria needs to be met to qualify for this classification