Accounting for Operating & Capital Leases Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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Question 1 1. An entry in an accounting journal includes a debit in property and equipment, and credit in leased obligation liability. Which of the following transactions have occurred?

Question 2 2. All of the following are reasons why a business may end up with capital lease EXCEPT:

Question 3 3. Which type of lease requires the asset to be depreciated?

Question 4 4. Which of the following leases should be classified as a capital lease?

Question 5 5. Which of the following types of leases would a lessee record at its fair market value on a balance sheet?

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Question 6 6. A lessee must record both depreciation and _____ made on a capital lease.

Question 7 7. Mark Consulting has entered into a capital lease for new equipment. If the annual lease payment is $18,000 and the interest portion in the first payment is $1,500, what is the journal entry to record the payment?

Question 8 8. Gourmet Popcorn Corporation has executed a capital lease for manufacturing equipment. The fair market value of the equipment is $15,000. If the annual payments are $4,500 and the expected rate of return is 5%, what is the amount of interest and principal for the first year's payment?

Question 9 9. Terry's Automotive is leasing a piece of equipment through a capital lease. The fair value of the machine is $32,000. Terry's Automotive makes annual payments of $8,800 and expected rate of return of 6%. How much is the cash on the company's cash flow statement decreased by in the first year?

Question 10 10.

Holiday Enterprises has entered into a 4-year operating lease for a computer system. The lease requires the company to make an annual prepayment. Each month, Holiday Enterprises debits rental expense by $295 and credits Prepaid lease by $295.


Which of the following statements is MOST accurate?

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Question 11 11. Bean Operating Systems has entered into a 3-year operating lease for a new security system. The security system has a fair market value of $15,000. The payments of $2,500 are due in advance of each year during the lease term. What is the proper journal entry at each payment date?

Question 12 12. Both the income statement and balance sheets are impacted when a(n) _____.

Question 13 13. Both the balance sheet and cash flow statement are impacted by _____.

Question 14 14. An entry in an accounting journal includes a debit to rental expenses and credit to cash. Which of the following transactions has occurred?

Question 15 15. XYZ Corporation does not have the cash to purchase a large piece of equipment upfront. The company also does not need to use the asset for a long period of time, and it doesn't want the risk of owning the equipment. XYZ Corporation may want to consider entering into a(n) _____.

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Question 16 16. In order for a lease to be classified as an operating lease, which of the following MUST be true?

Question 17 17. In a capital lease, the lessee _____ its accounting books.

Question 18 18. In the first year of a capital lease, what is the interest portion of the payment if the principal is $50,000 and the expected rate of return is 12%?

Question 19 19. In a capital lease, if you did not want to show the leased asset on your books, which party would you want to be?

Question 20 20. What entry is posted for a transaction accounted for as an operating lease?

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Question 21 21. Which of these transactions is most likely to receive operating lease accounting treatment?

Question 22 22. Which transaction is LEAST LIKELY to be treated as an operating lease?

Question 23 23. In an operating lease, on the lease payment date, the balance sheet is _____.

Question 24 24. Operating leases are the equivalent of _____ payments.

Question 25 25. In an operating lease, on the specified payment date, the cash flow statement shows a(n) _____.

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Question 26 26. Given what you now know about capital leases, which of the following would you expect to have a lot of leased assets that could potentially qualify as capital leases?

Question 27 27.

You're handed a lease with the following lease terms:

1) 10-year lease term with a bargain option to renew for another 10 years. Useful life of the asset: 25 years.

2) Leased asset returns to the lessor at the end of the lease if the bargain option is not used.

3) Fair value of the lease payments is $200,000. Fair value of the leased assets is $225,000.

If you wanted to make sure that this lease would be treated as an operating lease, what changes would you recommend?

Question 28 28. What distinguishes a capital lease from an operating lease?

Question 29 29. Each lease payment is composed of a portion that is _____ and a portion that is _____

Question 30 30. Which criteria is NOT one of the requirements to account for a lease as an operating lease?

Accounting for Operating & Capital Leases Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

Accounting 202: Intermediate Accounting II  /  Business Courses
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