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web.groovymark@gmail.com
- December 15, 2024
Question 41
What are the Benefits of Leasing for a Lessor?
A) Increased control over the asset
B) Interest revenue, tax incentives, and potential for a high residual value
C) Control over lease terms and contract flexibility
D) Full depreciation benefits and ownership
Answer: B) Interest revenue, tax incentives, and potential for a high residual value
Explanation:
For lessors, leasing provides benefits like interest revenue, potential tax advantages, and
the ability to earn more if the leased asset maintains a high residual value.
Question 42
What Expenses Does the Lessee Recognize in a Finance Lease?
A) Only the interest expense
B) Interest and amortization expenses
C) Depreciation expense only
D) No expenses are recognized
Answer: B) Interest and amortization expenses
Explanation:
In a finance lease, the lessee must recognize interest expense on the lease liability and
amortization expense on the right-of-use asset over the life of the lease.
Question 43
What Expenses Does the Lessee Recognize in an Operating Lease?
A) Interest expense and single lease expense
B) Depreciation and amortization
C) Interest expense only
D) Maintenance costs only
Answer: A) Interest expense and single lease expense
Explanation:
In an Operating Lease, the lessee recognizes interest expense on the lease liability and a
single lease expense that combines both interest and amortization of the right-of-use
asset.
Question 44
When Should a Lease Be Capitalized by the Lessor?
A) When the lease is for more than one year
B) When the lease is for less than one year
C) When the lease term is less than the asset’s useful life
D) When the lease does not transfer ownership
Answer: A) When the lease is for more than one year
Explanation:
A lease should be capitalized by the lessor if it exceeds a one-year term, meaning the
lessor recognizes a lease receivable and derecognizes the leased asset from its balance
sheet.
Question 45
How Should the Lessor Measure the Lease Receivable Using the Present Value Test?
A) By using the residual value only
B) By adding the present value of lease payments and guaranteed residual value
C) By subtracting the lease payments from the fair value
D) By using the total asset value
Answer: B) By adding the present value of lease payments and guaranteed residual value
Explanation:
The lessor measures the lease receivable by calculating the present value of the lease
payments and adding the present value of any guaranteed residual value.
Question 46
What Is a Sales-Type Lease with Guaranteed Residual Value?
A) A lease where the residual value is ignored
B) A lease where the residual value is added to the asset’s cost
C) A lease where the guaranteed residual value is included in both revenues and
cost of goods sold (COGS)
D) A lease where the residual value is shared between lessor and lessee
Answer: C) A lease where the guaranteed residual value is included in both revenues and
cost of goods sold (COGS)
Explanation:
In a sales-type lease, the lessor includes the guaranteed residual value when calculating
revenues and cost of goods sold, as it affects both cash flows and profit recognition.
Question 47
What Is the Incremental Borrowing Rate?
A) The rate of interest charged by banks for a secured loan
B) The interest rate a lessee would incur to borrow funds for purchasing the asset
C) The interest rate applied to unsecured loans
D) The interest rate agreed upon in a lease contract
Answer: B) The interest rate a lessee would incur to borrow funds for purchasing the
asset
Explanation:
The Incremental Borrowing Rate is the interest rate a lessee would have to pay to borrow
the funds necessary to purchase the asset, used when the lease’s implicit rate is not
known.
Question 48
What Are Input Measures?
A) Measures of the progress toward completion of a contract based on costs
incurred
B) Measures of the total revenue generated by a project
C) Measures of the final profit of a completed contract
D) Measures of the total number of workers on a project
Answer: A) Measures of the progress toward completion of a contract based on costs
incurred
Explanation:
Input Measures assess the progress toward completion of a contract by comparing the
costs incurred to date with the total estimated costs, commonly used in the percentage-ofcompletion method
Question 49
What Is a Guaranteed Residual Value?
A) The value a lessee is guaranteed to pay at the start of a lease
B) The amount the lessee guarantees to pay at the end of a lease if the asset is
not returned at its expected value
C) The value of an asset at the time of sale
D) The value guaranteed by a third party
Answer: B) The amount the lessee guarantees to pay at the end of a lease if the asset is
not returned at its expected value
Explanation:
A Guaranteed Residual Value is an obligation by the lessee to pay the lessor if the leased
asset’s value falls below a specified amount at the end of the lease term.
Question 50
What Is the Billings Account?
A) An account used to track completed sales transactions
B) An account used to record accounts payable
C) An account used under the percentage-of-completion method to subtract
billings from construction in process
D) An account used to manage client invoices
Answer: C) An account used under the percentage-of-completion method to subtract
billings from construction in process
Explanation:
The Billings Account is used under the percentage-of-completion method to ensure that
billed amounts are not double-counted in inventory by subtracting them from the
construction-in-process account.
