Lease Paper 6


On January 1, year 1, Hooks Oil Co. sold equipment with a carrying amount of $100,000, and a remaining useful life of ten years, to Maco Drilling for $150,000. Hooks immediately leased the equipment back under a ten-year capital lease with a present value of $150,000 and will depreciate the equipment using the straight-line method. Hooks made the first annual lease payment of $24,412 in December year 1. In Hooks’ December 31, year 1 balance sheet, the unearned gain on equipment sale should be


In a sale-leaseback transaction, the seller-lessee has retained the property. The gain on the sale should be recognized at the time of the sale-leaseback when the lease is classified as a(n)
Capital lease
Operating lease


Able sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of sale, the gain should be reported as


On January 1, year 1, Goliath entered into a five-year operating lease for equipment. In January year 3, Goliath decided that it no longer needs the equipment and terminates the contract by paying a penalty of $3,000. How should Goliath account for the lease termination costs?


In January year 1, Hopper Corp. signed a capital lease for equipment with a term of twenty years. In year 3, Hopper negotiated a modification to a capital lease that resulted in the lease being reclassified as an operating lease. Hopper calculated the company had a gain of $8,000 on the lease modification. Hopper retains all rights to use the property during the remainder of the lease term. How should Hopper account for the lease modification?


On January 1, year 1, Belkor entered into a 10-year capital lease for equipment. On December 1, year 4, Belkor terminates the capital lease and incurs a $20,000 loss. How should Belkor recognize the lease termination on their financial statements?


Morgan Corp. signs a lease to rent equipment for ten years. The lease payments of $10,000 per year are due on January 2 each year. At the end of the lease term, Morgan may purchase the equipment for $50. The equipment is estimated to have a useful life of 12 years. Morgan prepares its financial statements in accordance with IFRS. Morgan should classify this lease as a(n)


Santiago Corp. signs an agreement to lease land and a building for 20 years. At the end of the lease, the property will not transfer to Santiago. The life of the building is estimated to be 20 years. Santiago prepares its financial statements in accordance with IFRS. How should Santiago account for the lease?


Which of the following is not true regarding lease accounting under IFRS?


Under IFRS what is the interest rate used by lessees to capitalize a finance lease when the implicit rate cannot be determined?


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