41 initial direct costs are a costs incurred by a lessee that are directly associate 4314528

41 initial direct costs are a costs incurred by a lessee that are directly associate 4314528

41.              Initial direct costs are

a) costs incurred by a lessee that are directly associated with negotiating and arranging a lease.

b) expensed in the year of incurrence by the lessor in a financing-type lease.

c) spread over the term of a sales-type lease by the lessee.

d) deferred and allocated over the term of an operating lease in proportion to the amount of rental (lease) income that is recognized.

42. When is a lease recognized as an operating lease under ASPE?

a) if it is of low-value to the corporation

b) if it is less than one year

c) if it doesn’t meet the criteria of an capital lease

d) if the company elects to record as an operating lease

43. When is a lease recognized as an operating lease under IFRS?

a) if it is deemed so by the lessor

b) if it is less than one year

c) if it doesn’t meet the criteria of an operating lease

d) if the company elects to record as an operating lease

44. On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:

1.The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year.

2.The fair value of the machine on January 1, 2017, is $700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.

3.Marlene depreciates all its machinery on a straight-line basis.

4.Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich.

5.Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful.

             

If Dietrich accounts for the lease as an operating lease, what revenue(s) and/or expense(s) will be reported in calendar 2017 in relation to this lease?

a) Rental Revenue

b) Interest Income

c) Interest Expense and Depreciation Expense

d) Rental Revenue and Depreciation Expense

45. Under ASPE, leases are either capital or an operating lease to a lessee; under IFRS 16,

a) leases are treated the same as under ASPE.

b)leases are treated the same as under IAS 17.

c) all leases are considered capital.

d) all leases are considered capital except for short-term leases and leases of low-value assets.

46. Under IFRS 16, the lessee uses the rate implicit in the lease to calculate leases; under ASPE,

a) the same treatment is used.

b) the lower of the lessee’s incremental borrowing rate and the rate implicit in the lease is used.

c) the higher of the lessee’s incremental borrowing rate and the rate implicit in the lease is used.

d) the incremental borrowing rate is used.

47.              If a corporation adhering to IFRS sells machinery at fair value and then leases it back (sale-leaseback) as a finance lease, any gain on the sale should be

a) recognized in the year of “sale.”

b) recorded as other comprehensive income.

c) deferred and amortized to income over the term of the lease.

d) deferred and recognized as income at the end of the lease.

48. A sale-leaseback transaction is

a) a lease that has a profit component that is recognized as sales revenue.

b) when a company buys an asset and then leases it to someone else other than the seller.

c) a transaction in which a property owner sells a property to another party and, and at the same time leases a similar asset.

d) a transaction in which a property owner sells a property to another party and, at the same time, leases the same asset back from the new owner.

49.              Madrigal Corp. sold its headquarters building at a gain, and simultaneously leased back the building from the buyer. The lease was reported as a capital (finance) lease. At the time of the sale, the gain should be reported as

a) operating income.

b) other comprehensive income.

c) a separate component of shareholders' equity.

d) a deferred gain.

50.              Under ASPE, if land is the sole property being leased, and title does NOT transfer at the end of the lease, it should be accounted for as a(n)

a) operating lease.

b) capital lease.

c) sales-type lease.

d) direct-financing lease.

51. Under IFRS, if land is the sole property being leased, and title does transfer at the end of the lease, it should be accounted for as a(n)

a)operating lease.

b) capital lease.

c) sales-type lease or financing lease.

d) rental agreement.

52. Under IAS 17 when should a company classify its leases as finance leases?

a) when the risks and rewards of ownership are transferred to the lessee

b) all leases are finance leases

c) all leases are finance leases except for leases of low-value assets and short-term leases

d) when it is a sale-leaseback lease

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