Problems 12-2 Multiple Choice

1. The lease receivable in a direct financing lease is equal to

a. The cost of the leased asset on the part of lessor.

b. The difference between the gross rentals and the fair value of the leased asset.
c. The present value of minimum lease payments.
d. The cost of the asset less any accumulated depreciation.

2. The primary difference between a direct financing lease and a sales type lease is the

a. Manner in which rental collections are recorded as rental income.

b. Depreciation recorded each year by the lessor.
c. Recognition of the manufacturer or dealer profit at the inception of the lease.
d. Allocation of initial direct costs incurred by the lessor over the lease term.

3. All of the following would be included in the lease receivable, except

a. Guaranteed residual value

b. Unguaranteed residual value
c. A bargain purchase option
d. All would be included

4. In a direct financing lease, unearned interest income

a. Should be amortized over the lease term using the interest method.
b. Should be amortized over the lease term using the straight line method.
c. Does not arise.
d. Should be recognized at the lease expiration.

5. Which of the following statements is correct regarding initial direct costs incurred
by the lessor?

a. In a direct financing lease, initial direct costs are added to the net investment in
the lease.
b. In a sales type lease, initial direct costs are expensed as component of cost of
goods sold.
c. In an operating lease, initial direct costs are deferred and allocated over the
lease erm.
d. All of these statement are correct.