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web.groovymark@gmail.com
- December 15, 2024
Question 41
Which lease classification test checks if the lease term is a major part of the asset’s
economic life?
A) Transfer of ownership test
B) Lease term test
C) Present value test
D) Alternative use test
Answer: B) Lease term test
Explanation:
The lease term test checks whether the lease term is a major part (typically 75% or more)
of the asset’s economic life, indicating that the lessee is using most of the asset's useful
life.
Question 42
Which pension plan type defines the amount an employer must contribute but not the
benefit amount?
A) Defined benefit plan
B) Defined contribution plan
C) Noncontributory pension plan
D) Tax-qualified plan
Answer: B) Defined contribution plan
Explanation:
In a defined contribution plan, the employer agrees to contribute a specific amount, but
the future benefits depend on the plan’s investment performance.
Question 43
When does a lessor record interest revenue in a sales-type lease?
A) At the start of the lease
B) At the end of the lease term
C) Over the lease term
D) When the lease payments begin
Answer: C) Over the lease term
Explanation:
In a sales-type lease, the lessor recognizes interest revenue over the lease term as the
lease payments are made.
Question 44
What happens if a company fails to depreciate a long-term asset?
A) Net income is understated
B) Net income is overstated
C) Expenses are overstated
D) Liabilities are overstated
Answer: B) Net income is overstated
Explanation:
Failure to record depreciation leads to an understatement of expenses, resulting in
overstated net income
Question 45
What is the effect of an unguaranteed residual value in the lessor’s lease receivable?
A) It is ignored in calculating the lease receivable
B) It is added to the lease receivable
C) It reduces the lease receivable
D) It increases lease revenue
Answer: B) It is added to the lease receivable
Explanation:
An unguaranteed residual value is included in the lessor’s lease receivable as it represents
an expectation of recovering value from the asset at the end of the lease term.
Question 46
How is the cost of a leased asset recorded by the lessee in a finance lease?
A) At the total of all lease payments
B) At the fair value of the asset
C) At the present value of lease payments
D) At the interest rate implicit in the lease
Answer: C) At the present value of lease payments
Explanation:
In a finance lease, the lessee records the cost of the leased asset at the present value of the
lease payments.
Question 47
What is the journal entry for a lessor to record the first lease payment under an
operating lease?
A) Debit interest revenue, credit lease receivable
B) Debit lease liability, credit cash
C) Debit cash, credit unearned revenue
D) Debit lease receivable, credit sales revenue
Answer: C) Debit cash, credit unearned revenue
Explanation:
In an operating lease, the lessor records lease payments as unearned revenue until they
are earned over time.
Question 48
How does the lessee account for variable lease payments based on usage?
A) Include in the lease liability
B) Exclude from the lease liability but record as an expense when incurred
C) Add to the right-of-use asset
D) Record as revenue
Answer: B) Exclude from the lease liability but record as an expense when incurred
Explanation:
Variable lease payments based on usage or performance are excluded from the lease
liability and are recognized as an expense when incurred.
Question 49
What type of pension plan shifts the investment risk to the employee?
A) Defined benefit plan
B) Defined contribution plan
C) Noncontributory pension plan
D) Pay-as-you-go plan
Answer: B) Defined contribution plan
Explanation:
In a defined contribution plan, the employee bears the investment risk, as the future
benefits depend on the performance of the plan’s investments.
Question 50
How are cash inflows from the issuance of stock reported in the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Non-cash activities
Answer: C) Financing activities
Explanation:
Cash inflows from issuing stock are reported in the financing activities section of the
statement of cash flows, as they relate to the company’s equity financing
