WGU D105 Intermediate Accounting III Units 5-9 (LOV1)

1. Which finance lease classification test does the scenario represent?

Lease term

Alternative use

Purchase option

✓ Transfer of ownership

4. Which amount of lease receivable should the lessor record?

$220,000

✓ $176,000

$200,000

$160,000

5. Which journal entry should the lessor use to record the payment?

Credit Cash; Debit Lease Liability; Credit Interest Expense

✓ Debit Cash; Credit Interest Revenue; Credit Lease Receivable

Debit Interest Expense; Credit Cash; Credit Lease Liability

Debit Interest Revenue; Debit Lease Receivable; Credit Cash

6. How much should Company B record as lease expense on December 31, Year 1?

$10,833

$13,333

$11,366

✓ $11,723

7. Which value should Company A use as the basis for determining an appropriate lease payment?

$60,000

$50,000

$68,396

✓ $51,604

8. Which journal entry does Company B need to make to record revenue on December 31, Year 3?

Debit Cash for $9,167; Credit Lease Revenue for $9,167

Debit Unearned Lease Revenue for $9,167; Credit Lease Revenue for $9,167

Debit Cash for $10,213; Credit Lease Revenue for $10,213

✓ Debit Unearned Lease Revenue for $10,213; Credit Lease Revenue for $10,213

9. A lessor engages in a sales-type lease with an unguaranteed residual value. What is the sales price reduced by?

Cost of goods sold

✓ Present value of the estimated residual value

Estimated residual value

Present value of the gross profit

10. How does Company A treat the expected residual value of the automated bagging machine?

Pay the difference over the length of the lease.

Include the PV of the difference when computing lease liability.

✓ Remit the full guaranteed amount to Company B at the end of the lease.

Do nothing with the expected residual value.

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