Question

Which of the following items would require a lessor to classify a lease as an operating lease?

A)	The lease contains a bargain purchase option.

B)	Ownership of the property is transferred to the lessee during the lease term.

C)	The lease term is 80% of the estimated economic life of the leased property.

D)	The collectability of the minimum lease payments is highly uncertain.

Triple Tango Track leases exercise equipment to its customers under direct-financing leases. Typically the equipment has no residual value at the end of the leases and the contracts call for payments at the beginning of each year. Triple Tango Track’s target rate of return is 10%. On a five year-lease of equipment with a fair value of $485,100, how much interest revenue will Triple Tango Track earn over the life of the lease?

A)

$96,575

B)

$114,900

C)

$121,275

D)

$194,400

In the computation of pension expense, which of the following components is likely to be negative (i.e., to reduce pension expense)?

A)	Service cost

B)	Interest cost

C)	Amortization of past service cost

D)

Amortization of net asset gain

Answer 1

1)

Ans:

(d) The collectability of the minimum lease payments is highly uncertain.

whenever the collectability is Highly uncertain then it is considered as Operating Lease

2)

Ans:A $96,575

The present value factor for an annuity due for 5 periods at 10% is 4.16987

Annual payment=$485,100 / 4.16987=   $116,334 ($485,100 / 4.16987),

The Total Receipts=$116,334 x 5=$581,675.

The interest revenue is total receipts minus fair value= $581,675 - $485,100=$96,575

3) D) Amortisation of Net Asset Gain

There are two components of pension expense that may reduce pension expense

1. the return on plan assets (always)

2. the amortization of a net gain-AOCI