Reading 39: Non-current (Long-term) Liabilities-LOS g 习题精选 2011, between, finance, center, style

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 39: Non-current (Long-term) Liabilities

LOS g: Distinguish between a finance lease and an operating lease from the perspectives of the lessor and the lessee.

 

 

The lessee has an incentive to classify a lease as an operating lease, rather than as a finance lease, because an operating lease:

A) has no risk involved because the lessor assumes all risk.

B) does not appear on the balance sheet.

C) has payments that are less than a capital lease's payments.

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Having less assets and liabilities on the balance sheet than would exist if the asset were purchased increases profitability ratios (e.g., return on assets) and decreases leverage ratios (e.g., the debt to equity ratio).

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Compared to a finance lease, an operating lease is most likely to be favored when:

A) management compensation is not based on returns on invested capital.

B) the lessee has bond covenants relating to financial policies.

C) at the end of the lease, the lessee may be better able to sell the asset than the lessor.

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If the lessee has bond covenants (e.g., debt-to-equity ratio) relating to its financial policies that it must follow, it is best to have an operating lease due to the fact that the operating lease will keep the asset off of the balance sheet resulting in less liabilities.

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A lessee most likely has an incentive to structure a lease as an operating lease rather than a finance lease when it:

A) does not have debt covenants.

B) is very profitable.

C) has a high debt-to-equity ratio.

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A firm with a high debt-to-equity ratio is more likely to use an operating lease instead of a capital lease. Use of an operating lease avoids the recognition of debt on the lessee’s balance sheet and will not increase the debt-to-equity ratio.

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An analyst compares two companies that are identical except that Company X uses finance leases and Company Y uses operating leases. The analyst would expect Company X’s debt-to-equity ratio, relative to Company Y’s, to be:

A) lower.

B) the same.

C) higher.

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Lease capitalization adds both current and noncurrent liabilities to debt, resulting in a corresponding increase in the debt-to-equity and other leverage ratios. Thus, Company X’s (Debt + Lease)/Equity is greater than Company Y’s Debt/Equity.

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Under an operating lease (versus a finance lease) which of the following is higher for the lessee?

A) Cash flow from financing.

B) Cash flow from operations.

C) Assets.

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The lessee's cash flows from financing will be higher for an operating lease because the payments made for an operating lease are operating cash outflows, not financing cash outflows. The payments made under a finance lease are split between interest paid and principal. The latter is charged to cash flow from financing.

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Which of the following statements that classify a lease as a finance lease under U.S. GAAP is least accurate?

A) Title is transferred at the end of the lease period.

B) The present value of the lease payments is at least 80% of the fair market value of the asset.

C) A bargain purchase option exists.

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For a lease to be classified as a finance (capital) lease the present value of the lease payments must be at least 90% of the fair market value of the asset.

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Which of the following statements about the impact of leases on the financial statements of the lessee is least accurate?

A) Net income is lower in the early years of a finance lease than an operating lease.

B) Cash flow from investing is higher for a finance lease than an operating lease.

C) A finance lease results in higher liabilities compared to an operating lease.

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Cash flow from investing is not affected by a lease being either a finance or an operating lease. Finance leases reduce cash flow from operations by only the portion of the lease payment attributed to interest expense. Cash flow from financing is reduced by the rest of the finance lease payment which is the principal part of the payment.

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Which of the following is least likely one of the criteria under U.S. GAAP for classifying a lease as a finance lease? The:

A) lease contains a bargain purchase option.

B) term of the lease is 75% or more of the estimated economic life of the leased property.

C) lessor retains ownership of the property at the end of the lease term.

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If the lease transfers ownership of the property to the lessee at the end of the lease term, the lessee will classify the lease as a finance lease.

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According to U.S. GAAP, which of the following would least likely require a lessee to capitalize a lease?

A) The lease term is 75% or more of the estimated life of the leased asset.

B) The lessee has an option to purchase the asset for its fair market value at the end of the lease.

C) The present value of the minimum lease payments is 90% or more of the fair value of the leased asset.

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Under U.S. GAAP, a lease must be capitalized if it contains a bargain purchase option, not just a purchase option.