In computing the present value of the minimum lease payments, the lessee should
a. use its incremental borrowing rate in all cases.
b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee.
c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.
d. None of these answers are correct.
Answer: use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee
In computing depreciation of a leased asset, the lessee should subtract
a. a guaranteed residual value and depreciate over the term of the lease.
b. an unguaranteed residual value and depreciate over the term of the lease.
c. a guaranteed residual value and depreciate over the life of the asset.
d. an unguaranteed residual value and depreciate over the life of the asset.
Answer: a guaranteed residual value and depreciate over the term of the lease
Lessees prefer to account for their leases as operating lease because:
a. it increases their debt to total equity ratio.
b. it decreases the income tax expense.
c. it increases the amount of total assets.
d. it decreases the amount of liability reported.
Answer: it decreases the amount of liability reported
