Reference no: EM132645995

Problem 1: Which of these contractual terms would lead a company to account for a lease contract under the capital lease method? (check all that apply)

Option 1: None of these

Option 2: The lessee can buy the truck at its current market value at the end of the lease

Option 3: The present value of the lease payments is $89,000. The truck could be bought today for $100,000 cash.

Option 4: The lease runs for 2 years on a truck that is expected to have a 6 year life

Option 5: Ownership stays with the lessor at the end of the lease

Option 6: The IRS requires capital lease method for tax purposes for this contract

Problem 2: Which of the following statements is true about lease accounting methods? (check all that apply)

Option 1: Capital leases lead to a lower Return on Assets ratio than Operating leases

Option 2: Capital leases lead to lower Cash from Operations than Operating leases

Option 3: Capital leases have higher expenses than operating leases in the first year of the contract

Option 4: Capital leases lead to a higher Cash from Investing Activities than Operating leases

Option 5: Capital leases have higher total expenses than operating leases over the life of the contract