16.A firm is most likely to structure a lease as an operating lease rather than a capital lease, when it:

A)   has a high debt-to-equity ratio.

B)   is very profitable.

C)   does not have debt covenants.

D)   wants to increase total cash flows.

17.Compared to a capital lease, an operating lease is most likely to be favored when:

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

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

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

D)   the lessee expects to use the asset for more than the useful life of asset.

18.Talk 4 Free, an internet phone company, has recently signed a 4-year lease for $12 million of equipment. The lease payments are $2.5 million annually. The estimated life of the equipment is 6 years. After 4 years, they will have the option to purchase the equipment for $4 million. The lease would most correctly be classified as a(n):

A)   capital lease.

B)   sales-type lease.

C)   operating lease.

D)   direct-financing lease.

19.Which of the following statements regarding capital and operating leases is FALSE?

A)   For financial reporting of capital and operating leases no entry is required on the balance sheet at the inception of the lease.

B)   During the life of an operating lease the rent expense equals the lease payment.

C)   During the life of a capital lease the lease payment is separated into interest expense and principal payments.

D)   Asset turnover is higher with an operating lease than a capital lease.

20.Scooter has leased equipment for a period of 10 years with the following provisions:

§ Lease payments                             $5,000 per year

§ Current value of equipment               $45,000

§ Estimated useful life of equipment     15 years

§ Salvage value                                  no salvage value after 15 years

At the end of ten years, Scooter has the option to buy the equipment for $15,000. The discount rate is 10 percent. Scooter should:

A)   capitalize this lease because the present value of the lease payments exceeds 90% of its fair market value.

B)   capitalize this lease because the lease term is less than 75% of the economic life of the equipment.

C)   capitalize this lease because it involves a bargain purchase.

D)   treat this lease as an operating lease.

答案和详解如下：

16.A firm is most likely to structure a lease as an operating lease rather than a capital lease, when it:

A)   has a high debt-to-equity ratio.

B)   is very profitable.

C)   does not have debt covenants.

D)   wants to increase total cash flows.

The correct answer was A)

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.

17.Compared to a capital lease, an operating lease is most likely to be favored when:

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

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

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

D)   the lessee expects to use the asset for more than the useful life of asset.

The correct answer was B) 

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.

18.Talk 4 Free, an internet phone company, has recently signed a 4-year lease for $12 million of equipment. The lease payments are $2.5 million annually. The estimated life of the equipment is 6 years. After 4 years, they will have the option to purchase the equipment for $4 million. The lease would most correctly be classified as a(n):

A)   capital lease.

B)   sales-type lease.

C)   operating lease.

D)   direct-financing lease.

The correct answer was C)

The lease fails to meet any of the criteria necessary to be classified as a capital lease. Sales-type and direct-financing leases are types of capital leases so the lease also fails to meet the criteria for these types of leases. Therefore we must classify the lease as an operating lease.

19.Which of the following statements regarding capital and operating leases is FALSE?

A)   For financial reporting of capital and operating leases no entry is required on the balance sheet at the inception of the lease.

B)   During the life of an operating lease the rent expense equals the lease payment.

C)   During the life of a capital lease the lease payment is separated into interest expense and principal payments.

D)   Asset turnover is higher with an operating lease than a capital lease.

The correct answer was A)

If the lease is an operating lease there is no entry made on the balance sheet for the lessee. For capital leases the leased asset and liability are recognized on the balance sheet by the amount equal to the present value of the minimum lease payments using as the discount rate the lower of the lessor's implicit rate or the lessee's incremental borrowing rate.

20.Scooter has leased equipment for a period of 10 years with the following provisions:

§ Lease payments                             $5,000 per year

§ Current value of equipment               $45,000

§ Estimated useful life of equipment     15 years

§ Salvage value                                  no salvage value after 15 years

At the end of ten years, Scooter has the option to buy the equipment for $15,000. The discount rate is 10 percent. Scooter should:

A)   capitalize this lease because the present value of the lease payments exceeds 90% of its fair market value.

B)   capitalize this lease because the lease term is less than 75% of the economic life of the equipment.

C)   capitalize this lease because it involves a bargain purchase.

D)   treat this lease as an operating lease.

The correct answer was D)

Criterion	Qualify as a capital lease?
The title  is transferred to the leassee at the end of the lease period:	No
A bargain purchase option exists:	No
The lease period is at least 75 percent of the asset's life:	No
The present value of the lease payments is at least 90% of the fair value of the asset:	No

PV = $30,723 < 90% of $45,000 = $40,500