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563 Week 9 Quiz – Strayer NEW
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Week
9 Quiz 7: Chapters 13 and 14
Chapter
13
1.
Under the capital method of accounting for
leases the excess of aggregate rentals over the cost of leased property should
be recognized as revenue of the lessor
a. In increasing amounts during the term of the
lease
b. In constant amounts during the term of the
lease
c. In decreasing amounts during the term of the
lease
d. After the cost of leased property has been
fully recovered through rentals
Answer
2.
When measuring the present value of future
rentals to be capitalized as part of the purchase price in a lease that is be
accounted for as a purchase, identifiable payments to cover taxes, insurance,
and maintenance should be
a. Included
in the future rentals to be capitalized
b. Excluded
from future rentals to be capitalized
c. Capitalized
but at a different discount rate and recorded in a different account than
future rental payments
d. Capitalized
but at a different discount rate and for a relevant period that tends to be
different than that for future rental payments
Answer
3.
Equal monthly rental payments for a particular
lease should be charged to rental expense by the lessee for which of the
following?
Capital lease Operating lease
a.
Yes
No
b.
Yes Yes
c.
No No
d.
No
Yes
Answer
4.
In a lease that is recorded as a sales-type
lease by the lessor, the difference between the gross investment in the lease
and sum of the present values of the components of the gross investment should
be recognized as income
a. In full at the lease’s expiration
b. In full at the lease’s inception
c. Over the period of the lease using the
interest method of amortization
d. Over the period of the lease using the
straight-line method of amortization
Answer
5.
For a six-year capital lease, the
portion of the minimum lease payment in the third year applicable to the
reduction of the obligation should be
a. Less than in the second year
b. More than in the second year
c. The same as in the fourth year
d. More than in the fourth year
Answer
6.
Based solely upon the following sets of circumstances, indicate below which
set gives rise to a sales type or direct financing lease of a lessor:
Transfers Contains
Ownership bargain
By end of purchase
Lease? Provision?
a.
No Yes
b.
Yes
No
c.
Yes
Yes
d.
No No
Answer
7.
Generally accepted accounting principles
require that certain lease agreements be accounted for as purchases. The
theoretical basis for this treatment is that a lease of this type
a. Effectively
conveys all of the benefits and risks incident to the ownership of property
b. Is an example of form over substance
c. Provides the use of the leased asset to the
lessee for a limited period of time
d. Must be recorded in accordance with the
concept of cause and effect
Answer
8.
The appropriate valuation of an
operating lease on the statement of financial position of a lessee is
a. Zero
b. The
absolute sum of the lease payments
c. The
present value of the sum of the lease payments discounted at an appropriate
rate
d. The market value of the asset at the date of
the inception of the lease
Answer
9.
A six-year-capital lease entered into on
December 31, 2008, specified equal minimum annual lease payments due on
December 31, 2010. Minimum payment applicable to which of the following
increased over the corresponding December 31, 2010, minimum payment?
Reduction of
Interest
Expense
Liability
a.
Yes Yes
b.
Yes No
c.
No Yes
d.
No No
Answer
10. Office
equipment recorded under a capital lease containing a bargain purchase option
should be amortized
a. Over the period of the lease using the
interest method of amortization
b. Over the period of the lease using the
straight-line method of amortization
c. In a manner consistent with the lessee’s
normal depreciation policy for owned assets
d. In a manner consistent with the lessee’s
normal depreciation policy for owned
assets except that the period of amortization should be the lease term
Answer
11. What
is the primary accounting issue for lessees?
a. Recording
interest expense on the lease obligation.
b. Determining
whether the lease meets the 90% of fair value test.
c. Off-balance
sheet financing.
d. The
measurement of the leased asset under a capital lease.
Answer
12. What
is the primary accounting issue for lessors?
a. Off-balance
sheet financing.
b. Revenue
recognition and expense allocation over the lease term.
c. Treating
the lease in the same manner as the lessee does.
d. Determining
whether the lease is a sales-type lease or a direct financing lease.
Answer
13. For
the lessor to recognize a lease as a sales-type lease, the following must
occur.
a. At
least one of the capital lease criteria is met, at least one of the certainty
criteria is met, and there is a manufacturer or dealer’s profit.
b. At
least one of the capital lease criteria is met, both certainty criteria are
met, and there is a manufacturer or dealer’s profit.
c. More
than one of the capital lease criteria are met, both certainty criteria are
met, and there is a manufacturer or dealer’s profit.
d. Only
one of the capital lease criteria is met, both certainty criteria are met, and
there is a manufacturer or dealer’s profit.
Answer
14. A
net operating loss carryover that occurs in a company’s second year of
operations
a. May
cause a company to report a tax benefit in the current period income statement.
b. Has
no effect on income tax expense of the current period because no taxes are
paid.
c. Causes
a company to report a deferred income tax liability for taxes that are not paid
currently.
d. Results
in future taxable amounts.
Answer
15. For
a sales-type lease, the net investment is equal to
a. The
present value of the minimum lease payments plus executor costs.
b. The
net investment minus unearned income.
c. Sales
minus the gross profit recognized on the sale.
d. The
present value of the gross investment.
Answer
16. When
a lease contract does not transfer title to the lessee, there is no bargain
purchase option, and the lease term is not at least 75 percent of the estimated
useful life of the leased asset.
a. The
lessee must classify the lease as an operating lease.
b. The
amount of unguaranteed salvage value, if any, determines whether the lease is a
capital lease or an operating lease.
c. The
interest rate used to determine the present value of the minimum lease payments
also determines whether the lease is a capital lease or an operating lease.
d. The
lessee must use the greater of the lessor’s rate of return or the lessee’s
incremental borrowing rate to determine whether the lease is a capital lease or
an operating lease.
Answer
17. When
does the lessee report executory costs as an expense?
a. When
they are spelled out in the lease agreement.
b. Only
when they are incurred by the lessee and the lease is classified as a capital
lease.
c. When
they are incurred by the lessee.
d. Only
when they are incurred by the lessee and the lease is classified as an
operating lease.
Answer
18. If
the lessor incurs initial direct cost to bring about the lease, when are those costs
expensed in total during the first year of the lease term.
a. When
the lease is classified as a sales-type lease.
b. When
the lease is classified as a direct financing lease.
c. When
the lease is classified as an operating lease.
d. Initial
direct costs are always expensed during the first year of the lease term.
Answer
19. When
a sale and leaseback occurs
a. A
gain or loss on the sale of the leased asset is deferred and amortized over the
lease term .
b. A
gain on sale of the leased asset is deferred and amortized over the lease term.
c. Whether
a gain or loss on sale of the leased asset is deferred and amortized over the
lease term depends on whether the lease is classified as a capital lease or an
operating lease.
d. Both
gains and losses are recognized in earnings when the asset is sold.
Answer
20. Which
of the following would indicate that the lessee should not classify a
lease as a capital lease?
a. The
fair value of the leased asset is $100,000 and the present value of the minimum
lease payments is $95,000.
b. The
lease provides for no unguaranteed salvage value.
c. The
lessee has the option to purchase the leased asset in 4 years for $2 when the
asset’s salvage value is expected to be $20,000.
d. The
asset’s useful life is 20 years, a 4 year lease occurs when the asset is 26
years old.
Answer
Essay
1. List
four advantages of leasing over the purchase of property for use by a business.
2. Define
the following:
a.
Capital lease
b.
Operating lease
3. List
the four criteria for recording a lease transaction as a capital lease.
4. How
is the recorded amount of a lessee capital lease determined?
5. What
is the difference between a sales-type and a direct financing type of capital
lease?
6. What
is a leveraged lease? How do lessees and
lessors record leveraged leases?
EXAMPLE
TEST QUESTIONS
Chapter 14
Multiple Choice
1. APB
Opinion No. 8 set minimum and maximum limits on the annual provision for
pension cost. An amount that was always included in the calculation of both the
minimum and the maximum limit is
a. Normal cost
b. Amortization of past service cost
c. Interest on unfunded past and prior service
costs
d. Retirement benefits paid
2. In
accounting for a pension plan, any difference between the pension cost charged
to expense and the payments into the fund should be reported as
a. An offset to the liability for prior service
cost
b. Accrued or prepaid pension cost
c. An operating expense in this period
d. An accrued actuarial liability
Answer
3. Benefits
under a pension plan that are not contingent upon an employee’s continuing
service are
a. Granted under a plan of defined contribution
b. Based upon terminal funding
c. Actuarially unsound
d. Vested
Answer
4. According
to SFAS No. 87, “Employer’s Accounting for Pensions,” gains and losses should
be
a. Fully
allocated to current and future periods
b. Offset
against pension expense in the year of occurrence
c. Allocated
if any unrecognized gain or loss at the beginning of the year is in excess of
10 percent of the greater of the projected benefit obligation or the market
value of the plan assets
d. Disclosed
in a note to the financial statements only
Answer
5. According
to SFAS No. 87, prior service costs should be
a. Charged to retained earnings as a cost
relating to the past
b. Amortized over the service period of each
employee expected to receive benefits
c. Taken into consideration only by expensing
interest on the unfunded amount
d. Recorded in full as a liability at their
discounted present value
Answer
6. According
to SFAS No. 87, which of the following is never recorded as a component of
annual pension cost?
a. Amortization
of the intangible asset recorded as the offset to the minimum pension liability
b. Amortization
of prior service cost
c. Amortization
of gains and losses
d. Amortization
of the transition amount
7. In
determining whether to accrue employee’s compensation for future absences,
among the conditions that must be met are that the obligation relates to rights
that
Accumulate Vest
a.
No No
b.
No Yes
c.
Yes No
d.
Yes Yes
8. The
funded status of a defined benefit pension plan is equal to the
a. Vested
benefit obligation minus the fair value of the pension plan assets.
b. Accumulated
benefit obligation minus the fair value of the pension plan assets.
c. Projected
benefit obligation minus the fair value of the pension plan assets.
d. Projected
benefits plus the fair value of the pension plan assets minus employer
contributions to the pension plan.
Answer
9. If
the projected benefit obligation of a defined benefit pension plan exceeds the
fair value of the pension plan assets, the employer must report
a. The
difference as a liability in the balance sheet and a corresponding adjustment
to the amount of pension expense reported in earnings.
b. The
difference as a liability in the balance sheet and a corresponding adjustment to
other comprehensive income, net of deferred income taxes .
c. The
difference as an asset in the balance sheet and a corresponding adjustment to
the amount of pension expense reported in earnings.
d. The
difference as an asset in the balance sheet and a corresponding adjustment to
other comprehensive income, net of deferred income taxes.
Answer
10. The
funded status of a defined benefit pension plan is reported in the balance
sheet.
a. As
an asset, if the pension plan is underfunded.
b. As
a liability, if the pension plan is underfunded.
c. Because
it measures the minimum pension plan liability.
d. When
it exceeds the projected benefit obligation.
Answer
11. Some
theorists argue that the best measure of the employer’s defined benefit pension
plan obligation is the accumulated benefit obligation.
a. Since
the accumulated benefit obligation is measured using current salaries, it
represents the conservative floor for a company’s pension obligation to its
employees.
b. It
is consistent with the measurement of pension expense.
c. Since
the accumulated benefit obligation is measured using future salaries, it
represents the conservative floor for a company’s pension obligation to its
employees.
d. The
accumulated benefit obligation measures the present value of the amounts that
employees will receive from the pension plan once they retire.
12. benefits that are not contingent on the
employee continuing in the service of the company are
a. Accumulated
benefits.
b. Projected
benefits.
c. Benefits
earned to date.
d. Vested
benefits.
Answer
13. The
corridor approach
a. Is
used to determine how much interest to add to the service cost and amortization
of prior service in order to calculate pension expense for the period.
b. Is
used to determine the minimum amount of accumulated unamortized net gains or
losses that must be amortized during the accounting period.
c. Is
used to determine the amount of prior service cost to expense each accounting
period.
d. Is
use to determine the pension plan’s funded status.
Answer
14. What
effect did the requirement to replace the minimum liability requirement with
the funded status of a pension plan have for underfunded pension plans?
a. Return
on assets decreased.
b. There
was no effect on return on assets.
c. The
debt-to-Equity ratios increased.
d. Working
capital increased.
Answer
15. What
effect did the requirement to replace the minimum liability requirement with
the funded status of a pension plan have for overfunded pension plans?.
a. Return
on assets decreased.
b. There
was no effect on return on assets.
c. The
debt-to-Equity ratios increased.
a. Return
on common stockholders’ equity increased.
16. Which
of the following is not a difference between defined benefit pension
plans and other postretirement benefits (ORBS)
a. Unlike
defined benefit pension plan payments, there is no cap on the amount of OORB
benefit to be paid to participants .
b. Unlike
defined benefit pension plans, management promises OORB payments in exchange
for current services.
c. Unlike
defined benefit pension plans, employees do not accumulate additional OORB
benefits with each year of service.
d. Unlike
defined benefit pension plans, OORBs do not vest.
Answer
17. The
expected postretirement benefit obligation (EPBO) is
a. Similar
to the defined benefit pension plan’s projected benefit obligation because it
is the obligation attributable to employee service rendered to date.
b. Used
to calculate the interest component of OORB expense before full eligibility is
achieved.
c. Recognized
over the life expectancy of the employees when most participants are fully
eligible to receive benefits.
d. The
actuarial present value of the total benefits expected to be paid assuming full
eligibility is achieved.
Answer
Essay
1. Discuss
the difference between defined benefit and defined contribution pension plans.
2. Discuss
the cost approach and benefits approach actuarial funding methods.
3. Define
the following components of pension cost: under SFAS No. 87 (FASB ASC 715):
a.
Service
cost
b.
Interest
cost
c.
Return
on plan assets
d.
Amortization
of unrecognized prior service cost
e.
Amortization
of gains and losses
4.
What
four categories of information are required to be disclosed under the
provisions of SFAS No. 35 (FASB ASC 960)?
5.
Discuss
the characteristics that make accounting for other postretirement benefits more
difficult than accounting for pensions.
6. What
changes in accounting for pensions were required by SFAS No. 158 (FASB ASC
715)?
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