Equipment Lease Quiz
11. A kind of lease in which ownership of the asset is intended at the end of the lease is called:
- An operating lease
- A capital lease
- A transfer lease
- An equipment lease
13. In a lease agreement, the party that is paying rent is referred to as the:
- Lessor
- Lessee
- Renter
Property and Equipment Assessment
14. Bill is so excited about opening up his BBQ joint, “Sop ‘n Mop Rib Shack”. He only has a few things left to do before opening day. One task is to sign the lease for his 3 BBQ Smokers that just arrived. He is leasing them from the best BBQ Smoker supplier in town, Smokey’s Pit Boss. The lease is a capital lease with a term of 6 years with 10% interest.
In this example, Bill is considered the _________________ on the lease, and Smokey’s PitBoss is considered the ___________________.
- Financer, Financier
- Party, Exchanger
- Lessor, Lessee
- Lessee, Lessor
15. Bill is so excited about opening up his BBQ joint, “Sop ‘n Mop Rib Shack”. He only has a few things left to do before opening day. One task is to sign the lease for his 3 BBQ Smokers that just arrived. He is leasing them from the best BBQ Smoker supplier in town, Smokey’s Pit Boss. The lease is a capital lease with a term of 6 years with 10% interest.
Since Bill’s lease is a capital lease, this means at the end of the 6 years he _______________________.
- Owns the equipment himself, but may have a buy-out fee.
- Is able to upgrade the smoker’s, since they are now of little value, and continue with a new lease on new equipment.
- Can no longer write off depreciation since he owns the smokers.
- Has to sign another lease with new terms, accounting for the depreciation of the smokers, in order to continue using the equipment.
16. Bill is so excited about opening up his BBQ joint, “Sop ‘n Mop Rib Shack”. He only has a few things left to do before opening day. One task is to sign the lease for his 3 BBQ Smokers that just arrived. He is leasing them from the best BBQ Smoker supplier in town, Smokey’s Pit Boss. The lease is a capital lease with a term of 6 years with 10% interest.
Since Bill’s lease is a capital Lease, all of the following are true except:
- All risks and benefits are transferred to Bill.
- The payments for the smokers are considered an expense, since Bill is paying to lease them.
- Bill is responsible for the insurance, maintenance, and taxes of the smokers.
- Bill can claim the smokers as an asset, as well as account for depreciation of this asset on his balance sheet.
17. Larry Smith purchased equipment for $50,000 on January 1, 2020. Its useful life will be 7 years. What will his yearly Depreciation Expense be assuming straight-line depreciation? (Format your answer as $x,xxx.xx)
$7,142.86
18. On January 1, 2020, Marcy acquired a small bass boat for $10,000 to use as a business expansion for her fishing shop, “Bass and Brim”. Her goal is to offer charters for tourists and new anglers. The boat’s useful life is expected to be 10 years, and the salvage value is expected to be $0. After 4 years of use, it was determined that the boat would be useful for only three more years, meaning that the total useful life of the boat will be 7 years instead of 10. Marcy uses the straight-line method of depreciation.
Based on this information what amount should Marcy list as the Depreciation Expense for 2025? (Format your answer as $x,xxx)
$2,000
Shuffle Q/A 2
19. PP&E are considered which of the following:
- Non-current Assets
- Liabilities
- Inventory
- Current Assets
20. True or False: In order to adhere to the matching principle, depreciation expense is shown on the income statement.
- True
- False