1) The underlying value of an asset in a low-value asset lease is usually no greater than:

a) $10,000.00

b) $1,000.00

c) $5,000.00

d) the threshold set by the lessee as part of their accounting policies which consider the materiality of any particular item.

2) The lessee's incremental borrowing rate is the rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.

True or False

3) When a lease contains a purchase option that allows the lessee to purchase the leased asset for $1 at the end of the term when the market value at that time is estimated to be $10,000, the leased asset should be depreciated:

a) Over the economic life of the leased asset.

b) Over the term of the lease OR the economic life of the leased asset.

c) By the lessor.

d) Over the term of the lease.

4) The lessee measures the cost of a right-of-use asset and the corresponding lease liability as the:

a) future value of the periodic rental payments.

b) fair market value of the leased asset.

c) sum of the annual cash payments to be made during term of the lease.

d) present value of the periodic rental payments.

5) A lease containing a purchase option that is likely to be exercised by the lessee will impact:

a) the incremental target rate of return.

b) The lessor's profit in a sales-type lease.

c) the residual value guarantee.

d) The lessee's capitalized cost of the right-of-use asset.

6) Under IFRS, the proceeds of any lease arrangement involving both a parcel of land and building are prorated according to the fair values of the respective leasehold rights of the assets.

True or False

7) When a lessee measures the present value of future rent, identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance should be:

a) included in the present value of the future rentals to be capitalized.

b) excluded from the present value of the future rentals to be capitalized.

c) capitalized, but at a different discount rate and for a relevant period that usually is different than for the future rental payments.

d) capitalized, but at a different discount rate and reported in a separate asset account on the balance sheet.

8) Under ASPE, the following criterion is required to classify the lease as a capital lease:

a) The asset is highly specialized for the lessee.

b) The lease term is at least 65% of the of the asset's economic life.

c) The PV of the lease payments is equal to be lessor's cost of the asset.

d) There is a bargain purchase option available at the end of the lease term.

9) Under ASPE, a sufficient criterion for classification as a capital lease by a lessee is that the present value of the minimum lease payments is equal to 90% or more of the fair value of the leased asset.

True or False

10) All three capital lease criteria must be met in order for a lease to be deemed a capital lease.

True or False