16.An analyst compares two companies that are identical except that Company X capitalizes its leases and Company Y writes them off as operating leases. The analyst would expect Company X’s debt-to-equity ratio, relative to Company Y’s, to be:

A)   higher.

B)   the same.

C)   the same or lower depending on the situation.

D)   lower.

17.Which of the following statements about a capital lease is FALSE?

A)   As compared to an operating lease, a capital lease will report higher operating cash flows and lower financing cash flows.

B)   Over the life of a capital lease the total expenses will equal those of a similar operating lease. But the operating lease will have lower expenses in the earlier years while the capital lease will have lower expenses in the later years.

C)   Total cash flows are not affected by the accounting treatment of the lease.

D)   When a capital lease is initiated, the present value of the leased assets is treated as an investing cash flow.

18.When comparing a capital lease to an operating lease, which of the following statements about the capital lease is FALSE? A capital lease will have:

A)   a lower current ratio.

B)   higher cash flow from financing during the lease period.

C)   a higher debt to equity ratio.

D)   lower net income in the earlier years of the lease.

19.A lessee has a 15-year capital lease requiring equal annual payments. The reduction of the total lease liability in year 6 is equal to:

A)   1/15 of the original lease liability.

B)   the reduction of the long-term lease liability in year 6.

C)   the current liability shown for the lease at the end of year 6.

D)   the current liability shown for the lease at the end of year 5.

20.The Camden Company has just leased the following piece of equipment:

§ Market value of $200,000.

§ Useful life of 5 years with no salvage value.

§ Lease term is 4 years.

§ Annual lease payment is $30,000 and the lease rate is 11%.

§ The company’s overall borrowing rate is 9.5%.

§ The firm can purchase the equipment at the end of the lease period for $45,000.

What amount should be recorded on lessee's balance sheet?

A)   $93,073.

B)   $96,134.

C)   $127,435.

D)   $122,716.

答案和详解如下：

16.An analyst compares two companies that are identical except that Company X capitalizes its leases and Company Y writes them off as operating leases. The analyst would expect Company X’s debt-to-equity ratio, relative to Company Y’s, to be:

A)   higher.

B)   the same.

C)   the same or lower depending on the situation.

D)   lower.

The correct answer was A)

Lease capitalization adds both current and concurrent 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.

17.Which of the following statements about a capital lease is FALSE?

A)   As compared to an operating lease, a capital lease will report higher operating cash flows and lower financing cash flows.

B)   Over the life of a capital lease the total expenses will equal those of a similar operating lease. But the operating lease will have lower expenses in the earlier years while the capital lease will have lower expenses in the later years.

C)   Total cash flows are not affected by the accounting treatment of the lease.

D)   When a capital lease is initiated, the present value of the leased assets is treated as an investing cash flow.

The correct answer was D)

The present value of the leased assets is booked to fixed assets, but the present value is not an investing cash flow because no cash moved through the company. The transaction is reported as a note to the statement of cash flows.

18.When comparing a capital lease to an operating lease, which of the following statements about the capital lease is FALSE? A capital lease will have:

A)   a lower current ratio.

B)   higher cash flow from financing during the lease period.

C)   a higher debt to equity ratio.

D)   lower net income in the earlier years of the lease.

The correct answer was

Since a portion of the lease payment is treated as repayment of principal under a capital lease, cash flow from financing will be lower.

19.A lessee has a 15-year capital lease requiring equal annual payments. The reduction of the total lease liability in year 6 is equal to:

A)   1/15 of the original lease liability.

B)   the reduction of the long-term lease liability in year 6.

C)   the current liability shown for the lease at the end of year 6.

D)   the current liability shown for the lease at the end of year 5.

The correct answer was D)

There are two components of lease obligation, current and noncurrent, reported as liabilities for a capital lease. The current component is the principal portion of the lease payment to be made in the following year.

20.The Camden Company has just leased the following piece of equipment:

§ Market value of $200,000.

§ Useful life of 5 years with no salvage value.

§ Lease term is 4 years.

§ Annual lease payment is $30,000 and the lease rate is 11%.

§ The company’s overall borrowing rate is 9.5%.

§ The firm can purchase the equipment at the end of the lease period for $45,000.

What amount should be recorded on lessee's balance sheet?

A)   $93,073.

B)   $96,134.

C)   $127,435.

D)   $122,716.

The correct answer was B)

Use the lower of the company's lease rate or the borrowing rate of 9.5% for I/Y.

I/Y = 9.5, N = 4, FV = 0, PMT = $30,000, compute PV = $96,134.