. What impact does a bargain purchase option have on the present value of the lease payments computed by the lessee? The lease payments would be increased by the option price. The lessee must increase the present value of the lease payments by the present value of the option price. There is no impact as the option does not enter into the transaction until the end of the lease term. The lessee must decrease the present value of the lease payments by the present value of the option price.

. What impact does a bargain purchase option have on the present value of the lease payments computed by the lessee? The lease payments would be increased by the option price. The lessee must increase the present value of the lease payments by the present value of the option price. There is no impact as the option does not enter into the transaction until the end of the lease term. The lessee must decrease the present value of the lease payments by the present value of the option price.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2QTD

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Similar questions

When is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments? A.when the lessee's incremental borrowing rate is lower than the lessor's rate B.whenever the lessee knows what the lessor's rate is C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate D.when the lessor's rate is higher than the lessee's incremental borrowing rate
We classify a lease as a finance lease if: Multiple Choice the present value of lease payments is less than the asset's book value. the present value of lease payments is less than the asset's fair value. the lessee obtains control of the use of the asset. the usual risks and rewards are retained by the lessor.
Which of the following statements about purchase option is correct? a. None of the other choices is correct. b. Its present value is added to get the lease liability if it is reasonably certain that it will be exercised. c. it is ignored if the leased asset reverts back to the lessor at the end of the useful life. d. The lessee includes its present value on the computation of lease liability only if it is guaranteed.
Under a sales-type lease without an operating profit, how is the lessor's cost (i.e., the initial Lease Receivable account) computed: a. When there is no bargain purchase option or residual value? b. When there is a bargain purchase option? c. When there is no bargain purchase option but there is a guaranteed residual value? d. When there is no bargain purchase option but there is an unguaranteed residual value? e. Which discount rate does the lessor use in computing the lessor's cost (lease receivable)-the lessor's implicit rate or the lessee's incremental borrowing rate? Why? Any exceptions?
Can the present value of minimum lease payments differ between the lessor and lessee? If so, how?
The answer is incorrect. Can you at least calculate the value of the lease liability at the commencement in the lease?
The discount rate influences virtually every amount reported in connection with a lease by both the lessor and the lessee. What is the lessor’s discount rate when determining the present value of lease payments? What is the lessee’s discount rate?
Under IFRS, 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) use the implicit rate of the lessor, unless it is impracticable to determine the implicit rate.
How do you think expense stops and CPI adjustments in leases affect the riskiness of the lease from the lessor’s point of view?
1. Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price.Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life.Statement III. Assuming the lessee depreciates the asset under the straight-line method, the pattern of the total expense that the lessee shall recognized with respect to the lease is the same every period. A. Only Statement I and II are incorrect. B. Only Statement II and III are incorrect. C. Only Statement I and III are incorrect. D. All statements are incorrect. E. All statements are correct. 2. Statement I. If the pattern of the repairs cannot be established and the obligation for warranty cannot be reasonably estimated, warranty costs are recorded as expense when…
The discount rate influences virtually every amount reported in connection with a lease by both the lessor and the lessee. What is the lessor’s discount rate when determining the present value of minimum lease payments? What is the lessee’s discount rate?
Guaranteed residual value is a fixed amount required by the lessor at the termination of the lease only in the absence of a purchase option. a. TRUE b. FALSE