Nanotech Inc. leased a new machine having an expected useful life of $20$ years from Union Co$.$ Terms of the noncancelable $15-$year lease were that Nanotech would gain title to the property upon payment of a sum equal to the fair market value of the machine at the termination of the lease. Nanotech accounted for the lease as a capital lease and recorded an asset and a liability in the financial records. The asset recorded under this lease should properly be amortized over

a$.5$ years $($the period of actual ownership$).$

b$.15$ years $(75$ percent of the $20-$year asset life$).$

c$.20$ years $($the total asset life$).$

d$.15$ years $($the term of the lease$).$

An eight$-$year capital lease specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment in the fourth year applicable to the reduction of the net lease liability should be

a$.$ the same as in the third year.

b$.$ less than in the third year.

c$.$ less than in the fifth year.

d$.$ more than in the fifth year.

Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee for which of the following?

Capital Lease

a$.$ Yes

b$.$ Yes

c$.$ No

d$.$ No

Operating Lease

No

Yes

No

Yes

Which of the following would be considered an executory cost?

a$.$ Minimum lease payments

b$.$ Interest expense incurred

c$.$ Bargain purchase option

d$.$ Maintenance costs

From the standpoint of the lessee, the minimum lease payment includes all of the following except

a$.$ the guaranteed residual value.

b$.$ the lessee's obligation to pay executory costs.

c$.$ the bargain purchase option.

d$.$ any payment that the lessee must make upon failure to extend or renew the lease.

In a lease that is recorded as an operating lease by the lessee, the equal monthly rental payments should be

a$.$ allocated between interest expense and depreciation expense.

b$.$ allocated between a reduction of the liability for leased assets and interest expense.

c$.$ recorded as a reduction in the liability for leased assets.

d$.$ recorded as a rental expense.

Which one of the following items is not part of the minimum lease payments from the standpoint of the lessee?

a$.$ The minimum rental payments called for by the lease

b$.$ Any guarantee the lessee is required to make at the end of the lease term regarding any deficiency from a specified minimum

c$.$ Any estimated residual value at the end of the lease term

d$.$ Any payment the lessee must make at the end of the lease term to purchase the leased property under a bargain purchase option

A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the beginning of the lease term, the payment called for by the bargain purchase option would be

a$.$ subtracted at its present value.

b$.$ added at its exercise value.