1. When a lessee is accounting for a capital (finance) lease

a) a guaranteed residual value is excluded from the minimum lease payments.

b) an unguaranteed residual value is excluded from the minimum lease payments.

c) a guaranteed residual value is basically an additional lease payment due at the end of the lease.

d) the present value of any guaranteed residual is deducted from the leased asset cost in determining the depreciable amount.

2. In calculating depreciation of a leased asset, the lessee should subtract a(n)

a) guaranteed residual value and depreciate over the term of the lease.

b) unguaranteed residual value and depreciate over the term of the lease.

c) guaranteed residual value and depreciate over the economic life of the asset.

d) unguaranteed residual value and depreciate over the economic life of the asset.

3. Which item is NOT included in amount of the lease payment under IFRS 16?

a) Guaranteed residual values

b) Renewal or purchase options

c) Executory costs

d) Contingent rentals

4. A lessee reported a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal

a) the current liability shown for the lease at the end of year 1.

b) the current liability shown for the lease at the end of year 2.

c) the reduction of the lease obligation in year 1.

d) one-tenth of the original lease liability.

5. Which statement is correct in comparing capital leases to operating leases?

a) A capital lease will have a higher asset turnover compared to an operating lease.

b) A capital lease will increase the return on total assets compared to an operating lease.

c) A capital lease will have a lower debt-to-equity ratio compared to an operating lease.

d) A capital lease will have a higher debt-to-equity ratio compared to an operating lease.