Bakersfield College

ACG 2021

1)Corp. has a debt/equity ratio of 2 to 1. Not including any indirect effects on earnings, the debt/equity ratio is increased when B records:

A Capital Lease        An Operating Lease

1. 1. 1. yes                                               yes
      2. no                                                 no
      3. yes                                               no
      4. no                                                 yes

2. L Corp. recorded a capital lease in February using an annuity due present value table. The company’s December 31 statement of cash flows using the indirect method will report:
   1. An addition to net income for depreciation.
   2. A cash inflow from financing activities.
   3. A cash outflow from investing activities.
   4. A cash inflow from operating activities.

3. M Corp. recorded a capital lease in February using an annuity due present value table. The company’s December 31 statement of cash flows using the direct method will report:
   1. A cash inflow from investing activities.
   2. A cash outflow from financing activities.
   3. A cash outflow from investing activities.
   4. A cash inflow from operating activities.

4. P Corp. leased an asset to L Corp. using an operating lease in February. P Corp.’s December 31 statement of cash flows will report:
   1. A cash outflow from investing activities.
   2. A cash outflow from financing activities.
   3. A cash inflow from operating activities.
   4. No cash outflow.

5. J Corp. entered into an operating lease in February. The company’s December 31 statement of cash flows will report:
   1. A cash outflow from investing activities.
   2. A cash outflow from financing activities.
   3. A cash outflow from operating activities.
   4. No cash outflow.

6. Which of the following statements characterizes a sale-leaseback arrangement?
   1. The lessee also is the seller.
   2. The lessor treats the lease as an operating lease.
   3. The lessee buys the asset from a third party.
   4. The lessor's interest rate is always higher than in a capital lease.

7. In a sale-leaseback arrangement, the lessee is also:
   1. The new owner of the property.
   2. The buyer.
   3. A third-party guarantor.
   4. The seller.

8. On December 31, 2016, B Corp. sold a machine to Royal and simultaneously leased it back for one year. Pertinent information at this date follows:

Sales price                                                                     $720,000

Book value                                                                      660,000

Present value of lease rentals                                   68,200 ($6,000 for 12 months at 12%)

Estimated remaining useful life                                12 years

In B's December 31, 2016, balance sheet, the deferred revenue from the sale of this machine should be:

a.    $           0.

b.   $ 8,200.

c.     $60,000.

d.   $68,200.

9. If the leaseback portion of a sale-leaseback transaction is classified as an operating lease:
   1. Any gain is deferred and recognized as a reduction of rent expense.
   2. Any gain is deferred and recognized as a reduction of depreciation.
   3. Any gain is recognized at the lease’s inception.
   4. There can be no gain.

10. If the leaseback portion of a sale-leaseback transaction is classified as a capital lease:
    1. Any gain is deferred and recognized as a reduction of rent expense.
    2. Any gain is deferred and recognized as a reduction of depreciation.
    3. Any gain is recognized at the lease’s inception.
    4. There can be no gain.

11. Under both U.S. GAAP and IFRS, a lease is a capital lease (called a finance lease under IFRS) if substantially all risks and rewards of ownership are transferred. In making this determination, more judgment, and less specificity, is applied using:
    1. U.S. GAAP.