Multiple Choice Questions
1. Which of the following statements regarding leases is false?
a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash.
b. Accounting recognizes two types of leases€”operating and capital leases.
c. If a lease is classified as a capital lease, the lessee records a lease liability on its balance sheet.
d. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.
2. Which of the following lease conditions would result in a capital lease to the lessee?
a. The lessee can purchase the property for $1 at the end of the lease term.
b. The lease term is 70 percent of the property€™s economic life.
c. The fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,977.
d. The lessee will return the property to the lessor at the end of the lease term.
3. Willow Corporation€™s balance sheet showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total stockholders€™ equity was $6,000. The debt to equity ratio is
a. 0.63.
b. 0.83.
c. 1.42.
d. 1.47.
4. Kinsella Corporation€™s balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the long-term debt to equity ratio?
a. 0.125
b. 0.25
c. 0.375
d. 0.75
5. McLaughlin Corporation€™s balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the debt to total assets ratio?
a. 0.50
b. 0.875
c. 1
d. 2
6. The bond issue price is determined by calculating the
a. Present value of the stream of interest payments and the future value of the maturity amount.
b. Future value of the stream of interest payments and the future value of the maturity amount.
c. Future value of the stream of interest payments and the present value of the maturity amount.
d. Present value of the stream of interest payments and the present value of the maturity amount.

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a. Leased Assct b. Prepaid Rent40,000 c. Prepaid Rent 40,000 Lcase Liability. Lcasc Liability.... Lease Liability 40,000 40,000 4,000 4,000