Question 1

Which of the following describes a sales and leaseback arrangement?

Accepted Answer

A)  A sale and leaseback arrangement is a type of operating lease.
B)  A sale and leaseback arrangement is a type of buyback loan.
C)  A sale and leaseback arrangement is a type of financial, or capital, lease.
D)  A sale and leaseback arrangement is a type of asset-based loan.E) C) and D)
F) B) and D)

Question 2

International Accounting Standards IAS 17 requires that for an unqualified audit report,financial (or capital)  leases must be included in the balance sheet.How should they be reported?

Accepted Answer

A)  residual value as a fixed asset
B)  residual value as a liability
C)  present value of future lease payments as an asset and also showing this same amount as an offsetting liability
D)  undiscounted sum of future lease payments as an asset and as an offsetting liabilityE) C) and D)
F) None of the above

Question 3

In the lease versus buy decision,why is leasing often preferable?

Accepted Answer

A)  because it has no effect on the firm's ability to borrow to make other investments
B)  because, generally, no down payment is required, and there are no indirect interest costs
C)  because lease obligations do not affect the firm's risk as seen by investors
D)  because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the assetE) B) and C)
F) A) and D)

Question 4

Which type of organization are Xerox and IBM good examples of?

Accepted Answer

A)  firms specializing in lease financing
B)  firms using only leases for asset financing
C)  manufacturers of items that are financed exclusively by firms specializing in lease financing
D)  manufacturers providing lease financing as part of their regular sales effortE) A) and B)
F) All of the above

Question 5

ABC LeasingABC Leasing has an after-tax cost of borrowing of 10%. The company is in a 35% tax bracket. A new machine will be purchased for $100,000. The straight-line method is used to calculate depreciation. With heavy use, the salvage value is zero. The firm now wants to rent out this machine for 5 years at a required return of 15%. The first lease payment starts once the contract has been signed. Furthermore, lease payments received by the lessor are fully taxable.
-Refer to Scenario: ABC Leasing.What is the net cost of this machine for the lessor as a legal owner receiving all tax benefits?

Accepted Answer

A)  $19,057
B)  $29,318
C)  $73,465
D)  $100,000E) B) and C)
F) All of the above

Exam 15: Lease Financing

Which type of organization are Xerox and IBM good examples of?

Correct Answer
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Correct Answer
verified

In the lease versus buy decision,why is leasing often preferable?

Correct Answer
verified

International Accounting Standards IAS 17 requires that for an unqualified audit report,financial (or capital) leases must be included in the balance sheet.How should they be reported?

Correct Answer
verified

Which of the following describes a sales and leaseback arrangement?

Correct Answer
verified

Exam 15: Lease Financing

Which type of organization are Xerox and IBM good examples of?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the lease versus buy decision,why is leasing often preferable?

Correct AnswerverifiedShow Answer

International Accounting Standards IAS 17 requires that for an unqualified audit report,financial (or capital) leases must be included in the balance sheet.How should they be reported?

Correct AnswerverifiedShow Answer

Which of the following describes a sales and leaseback arrangement?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified