TOA QUIZZER 4 7.

It is a benefit plan under which an entity pays a

Multiple Choice fixed contribution into a separate fund and will
Identify the choice that best completes the statement or answers the question. have no legal or constructive obligation to pay
further contribution if the fund becomes
____ 1. These are all forms of consideration given by an
insufficient to pay employee benefits.
entity in exchange for service rendered by a. Postemployment benefit plan c. Defined benefit plan
employees. b. Defined contribution plan d. Multi-employer plan
a. Employee benefits c. Fringe benefit
b. Employee compensation d. Salaries and wages
8. Which is incorrect concerning the recognition and
measurement of a defined contribution plan?
____ 2. Short-term employee benefits include all of the following, a. The contribution shall be recognized as expense in the
except period it is payable.
a. Wages, salaries and social security contributions. b. Any unpaid contribution at the end of the period shall be
b. Short-term compensated absences. recognized as accrued liability.
c. Profit-sharing and bonuses payable in more than twelve c. Any excess contribution shall be recognized as prepaid
months after the end of the period in which the employees expense but only to the extent that the prepayment will lead
render the related service. to a reduction in future payments or a cash refund.
d. Nonmonetary benefits for current employees, such as d. An entity shall not disclose the amount recognized as
medical care, housing, car and free and subsidized goods. expense for a defined contribution plan.

9. Which is incorrect concerning the recognition and

____ 3. These are compensated absences that are carried
measurement of a defined benefit plan?
forward and can be used in future periods and the a. Actuarial assumptions are required to measure the
employees are entitled to a cash payment for obligation and expense and there is a possibility of
unused entitlement on leaving the entity. actuarial gains and losses.
b. The obligation is measured on a discounted basis.
a. Accumulating and vesting c. Nonaccumulating and
c. The defined benefit plan must be fully funded.
vesting
d. The expense recognized for a defined benefit plan is not
b. Accumulating and d. Nonaccumulating and
necessarily the amount of contribution due for the period.
nonvesting nonvesting

____ 4. Post-employment employee benefits include all of the 10. What is the mandated method of determining the
following, except present value of the defined benefit obligation?
a. Nonmonetary benefits such as housing, car and free or a. Projected unit credit c. Individual level premium
subsidized goods. method method
b. Retirement benefits, such as pensions. b. Entry age normal method d. Aggregate method
c. Postemployment life insurance
d. Postemployment medical care
11. It is the increase in the present value of the
____ 5. The entity retains the obligation for the payment defined benefit obligation resulting from
of retirement benefits without the establishment employee service in the current period.
a. Current service cost c. Past service cost
of a separate fund. b. Interest cost d. Unrecognized actuarial loss
a. Contributory plan c. Funded plan
b. Noncontributory plan d. Unfunded plan
12. These are assets held by an entity, the fund itself,
____ 6. Under a defined contribution plan that is legally separate from the reporting entity
I. The entity’s legal or constructive obligation is limited to the and exists solely to pay or fund employee
amount it agrees to contribute to the fund.
benefits.
II. The entity’s obligation is to provide the a. Plan assets c. Retirement fund
agreed benefits to current and former b. Trust fund d. Pension assets
employees.
a. I only c. Both I and II
13. Plan assets are assets held by a long-term benefit fund
b. II only d. Neither I nor II
that satisfies all of the following conditions, except
a. The fund is legally separate from the reporting entity.
b. The assets of the fund are to be used only to settle the
employee benefit obligation.
c. The assets in the fund can be returned to the entity even if
the remaining assets of the fund are not sufficient to meet
 the plan’s obligation. II. If the benefits are not vested, the past service
d. The assets are not available to the reporting entity’s
creditors even in bankruptcy. cost is amortized on a straight line basis
over the period until the benefits become
vested.
____ 14. It is an insurance policy issued by an insurer that a. I only c. Both I and II
is not a related party of the reporting entity and b. II only d. Neither I nor II
the proceeds of the policy can be used only to pay
or fund employee benefits under a defined 20. The vested benefits
benefit plan. a. Are employee benefits that are not conditional on future
a. Qualifying insurance c. Annuity employment.
policy b. Are benefits to be paid to the retired employees in the
b. Aggregate policy d. Unconditional insurance current period.
policy c. Are benefits to be paid to the retired employees in the
subsequent year.
d. Are benefits accumulated in the hands of a trustee.
____ 15. Which is incorrect concerning return on plan assets?
a. The actual return on plan assets is one component of the
expense recognized in the income statement. 21. Which is incorrect concerning
the basic accounting
b. The difference between the expected return and actual considerations for a defined benefit plan?
return on plan assets is an actuarial gain or loss.
a. The fair value of plan assets is the source of fund set aside
c. The expected return on plan assets is based on market
in meeting future benefit payments.
expectations, at the beginning of the period, for returns
b. The projected benefit obligation is the present value of
over the entire life of the related obligation.
expected future payments required to settle the obligation
d. In determining the expected and actual return on plan
arising from employee service in the current and prior
assets, an entity shall deduct expected administration costs
periods.
not included in actuarial assumptions in measuring defined
c. If the fair value of plan assets is more than the projected
benefit obligation, and tax payable by the plan itself.
benefit obligation, the plan is overfunded and there is
prepaid benefit cost.
d. The fair value of plan assets is classified as noncurrent
____ 16. The amount recognized as liability in the statements of financial
asset and the projected benefit obligation is classified as
position shall be the net total of the following amounts (choose
noncurrent liability in the statement of financial position.
the incorrect one)
a. The present value of the projected benefit obligation at
balance sheet date 22. These are the entity’s best estimates of the
b. Plus any actuarial gains, less any actuarial losses, not yet
recognized variables that will determine the ultimate cost of
c. Plus any past service cost not yet recognized providing postemployment benefits.
d. Minus the fair value of plan assets at balance sheet date a. Actuarial assumptions c. Financial assumptions
b. Demographic assumptions d. Actuarial computations

____ 17. It is the excess of the fair value of the plan assets
over the present value of the defined benefit 23. Which statement is correct concerning actuarial gains and
losses?
obligation. I. Actuarial gains and losses comprise of experience
a. Surplus c. Accrued benefit cost adjustments and the effects of changes in actuarial
b. Projected benefit d. Accumulated benefit assumptions.
obligation obligation II. Actuarial gains and losses may result from
increases or decreases in either the present
____ 18. It is the increase in present value of the defined value of defined benefit obligation or the
benefit obligation for employee service in prior fair value of any related plan assets.
a. I only c. Both I and II
periods, resulting in the current period from the b. II only d. Neither I nor II
introduction or amendment of a defined benefit
plan.
a. Current service cost c. Past service cost 24. What is the so called “corridor” in the recognition
b. Interest cost d. Employee benefit cost of actuarial gains and losses?
a. 10% of the present value of the defined benefit obligation
or 10% of the fair value of plan assets at the beginning of
____ 19. Which is correct concerning amortization of past service cost?
the year, whichever is higher.
I. The past service cost shall be expensed immediately when
b. 10% of the present value of the defined benefit obligation
additional benefits vest immediately.
or 10% of the fair value of the plan assets at the beginning
of the year, whichever is lower.
c. 10% of the present value of the defined benefit obligation
 or 10% of the fair value of plan assets at the end of the d. Credited to equity
year, whichever is higher.
d. 10% of the present value of the defined benefit obligation
or 10% of the fair value of plan assets at the end of the 31. An entity contributes to an industrial pension plan
year, whichever is lower.
that provides a pension arrangement for its
employees. A large number of other employers
____ 25. Which statement is incorrectconcerning actuarial also contibute to the pension plan and the entity
assumptions for a defined benefit plan? makes contribution in respect of each employee.
a. Actuarial assumptions shall be biased and mutually
compatible These contributions are kept separate from
b. Actuarial assumptions comprise of demographic and corporate assets and are used together with any
financial assumptions.
c. The discount rate is equal to the market yield at the end of investment income to purchase annuities for
reporting period on high quality bonds, or if there are no retired employees. The only obligation of the
such bonds, the market yield on government bonds.
d. Postemployment benefit obligations shall be measured on entity is to pay the annual contribution. This
a basis that reflects estimated future salarry increases. pension scheme is
a. Multiemployer plan and a defined contribution scheme
b. Multiemployer plan and a defined benefit scheme
____ 26. The discount rate used in making actuarial c. Defined contribution plan only
d. Defined benefit plan only
assumptions shall be determined by reference to
a. Market yield at the end of reporting period on high quality
bonds.
b. Stated rate on high quality bonds. 32. An entity has decided to improve its defined
c. Market yield at the end of reporting period on government benefit pension scheme. The benefit payable shall
bonds.
d. Stated rate on government bonds.
be determined by reference to 60 years of service
rather than 65 years of service. As a result, the
defined benefit pension liability would increase.
____ 27. These are employee benefits that are payable as a The average remaining service period of the
result of an entity’s decision to terminate an employees is 10 years. What is the treatment of
employee’s employment before the normal the increase in the pension liability in the financial
retirement date, or an employee’s decision to statements?
accept voluntary redundancy in exchange for a. The past service cost shall be charged against retained
those benefits. earnings.
a. Termination benefits b. The past service cost shall be charged against profit or loss
b. Short-term benefits for the year.
c. Long-term benefits c. The past service cost shall be spread over the remaining
d. Postemployment benefits service period of the employees.
d. The past service cost shall bot be recognized.

____ 28. The gain or loss on curtailment or settlement shall

33. An entity uses Philippine Financial Reporting
be
a. Recognized when the curtailment or settlement occurs.
Standards to prepare its financial statements but
b. Recognized in other comprehensive income. the defined benefit obligation has been calculated
c. Deferred and amortized over the average remaining using assumptions that are different from PFRS.
service period of the covered employees.
d. Treated as a change in accounting policy. The financial statements of the entity also do not
take into account unrecognized past service cost.
____ 29. Any transition loss on first adopting PAS 19 shall be recognized How would the entity measure its net pension
I. As expense immediately liability?
II. As expense over a maximum of 5 years a. The net present value of the defined benefit obligation less
a. I only c. Either I or II irrevocably the fair value of the plan assets.
b. II only d. Either I or II revocably b. The net present value of the defined benefit obligation less
the fair value of plan assets less the unrecognized past
service cost.
c. The net present value of the defined benefit obligation less
____ 30. Any transition gain on first adopting PAS 19 shall the fair value of the plan assets less the unrecognized past
be service cost and in addition, a review of the assumptions
a. Recognized in income immediately shall be undertaken to remeasure the obligation.
b. Deferred and amortized over a maximum of 5 years d. The value in the entity’s statement of financial position will
c. Credited to retained earnings simply be used in the consolidated financial statements.
 an employee’s employment before the normal retirement
date.
____ 34. An entity operates a defined benefit pension plan and changes d. Benefits which are payable after completion of
it at the beginning of the current year to a defined contribution employment.
plan. The net pension liability after the plan amendment is less
than the net pension liability before the plan
39. Which of the following items should be included in plan assets?
amendment. How should the entity account for I. Assets held by a long-term employee benefit fund.
this change? II. Qualifying insurance policies.
a. The entity shall recognize a gain. a. I only c. Both I and II
b. The entity does not recognize a gain. b. II only d. Neither I nor II
c. The entity shall recognize a gain over the remaining service
period of the employees.
d. The entity shall recognize the gain but applies the 10%
corridor approach.
40. Under which category should lump sum benefit
expressed as a certain percent of the final salary
for each year of services and actuarial gains can
____ 35. An entity operates a defined benefit plan that be accounted for?
pays employees an annual benefit based on the a. Lump sum benefit should be accounted for under defined
number of years of service. The annual payment benefit plans. Actuarial gains should be accounted for
under defined benefit plans.
does allow the employer to vary the final benefit. b. Lump sum benefit should be accounted for under short-
Over the last five years, the entity has used his term employee benefits. Actuarial gains should be
accounted for under defined benefit plans.
flexibility to increase employee’s pension by the c. Lump sum benefit should be accounted for under defined
current growth in earnings per share. How will benefit plans. Actuarial gains should be accounted for
under defined contribution plans.
employees’ benefit be calculated if they retire in d. Lump sum benefit should be accounted for under short-
the current period? term employee benefits. Actuarial gains should be
a. It will be based on the existing plan rules plus the additional accounted for under defined contribution plans.
award.
b. It will be based on the existing plan rules plus the current
rate of growth in earnings per share. 41. The report of a defined contribution plan shall contain
c. It will be based on the plan rules plus the current rate of I. A statement of net assets available for benefits.
inflation. II. A description of the funding policy.
d. It will be based on the plan rules plus the increase in a. I only c. Both I and II
earnings per share anticipated over the remaining service b. II only d. Either I or II
period of the employees.

42. The report of a defined benefit plan shall contain

____ 36. Which of these events will not cause a change in a I. A statement showing net assets available for benefits, the
present value of promised benefits and the resuliting
defined benefit obligation? excess or deficit.
a. Changes in mortality rate or the proportion of employees
taking early retirement. II. A statement of net assets available for benefits
b. Changes in the estimated salaries or benefits that will occur including a note disclosing the present value
in the future.
c. Changes in the estimated employee turnover. of promised benefits.
d. Changes in the expected rate of return on plan assets. a. I only c. Both I and II
b. II only d. Either I or II

____ 37. Which of the following terms best describes

43. Retirement benefit plan investments shall be
benefits which are payable as a result of an
carried at
entity’s decision to end an employee’s a. Fair value c. Not realize value
employment before the normal retirement date? b. Historical cost less d. Value in use
a. Postemployment benefits c. Termination benefits impairment
b. Defined contribution plans d. Defined benefit plans

44. In rare circumtances, when a retirement benefit

____ 38. Which of the following statements best describes plan has attributes of both defined contribution
“other long-term employee benefits”? plan and defined benefit plan, it is deemed
a. Benefits that are not due to be settled within twelve months a. Defined benefit plan
at the end of the period in which the service is rendered. b. Defined contribution plan
b. Benefits that are due to be settled within twelve months at c. Neither defined benefit plan nor defined contribution plan
the end of the period in which the service is rendered. d. Both defined benefit plan and defined contribution plan
c. Benefits payable as a result of an entity’s decision to end
____ 45. In the case of a defined benefit plan, PAS 26 51. Unrecognized past service cost can be amortized
a. Makes it incumbent upon the plan to obtain an annual based on which of the following methods?
actuarial valuation.
a. Straight line method using any systematic and rational
b. Does not make it incumbent upon the plan to obtain an
approach
annual actuarial valuation
b. Straight line method based on the average remaining
c. Allows the plan to estimate the present value of future
service period of the qualified employees
benefits based on valuation done by other similar plans.
c. Interest method using the actuary’s discount rate
d. Allows the plan to add a percentage based on consumer
d. Service method based on the average remaining service
price index to the previous year’s valuation of actuarial
period of the qualified employees
valuation.

____ 46. PAS 26 Accounting and reporting by retirement benefit plans 52. If the actual return onplan assets exceeds the
shall be applied to which of the following? expected return for the period the difference is
a. The costs to entities of employee retirement benefits a. A deferred loss
b. Report to individuals on their future retirement benefits b. A deferred gain
c. The financial statements relating to an actuarial business c. Recognized as a loss in the current period
d. The general purpose financial reports of pension schemes d. Recognized as a gain in the current period

____ 47. Which of the following may be disclosed in the 53. The components of net periodic pension expense that involve
delayed recognition are
financial report of a defined benefit plan but a. Interest cost, past service cost, transition cost and
would not be shown in the financial report of a expected return on plan assets.
defined contribution plan? b. Service cost, transition cost, and gains and losses.
c. Gains and losses, transition cost and past service cost.
a. Government bonds held
d. Transition cost, past service cost and expected return on
b. Actuarial present value of promised retirement benefits
plan assets.
c. Employee contributions
d. Employer contributions

54. required for the

Which of the following criteria is not
____ 48. An employer sponsoring a defined benefit recognition of a liability for compensated
pension plan must report a liability in the absences?
statement of financial position equal to a. The amount of the obligation must be estimable.
b. Payment of the obligation must be probable.
a. The current year pension cost that was not funded.
c. Payment of the obligation will require the use of current
b. The difference between the fair value of plan assets and
assets.
the accumulated benefit obligation.
d. The compensation either vests with the employee or can
c. The difference between the accumulated benefit obligation
be carried forward to subsequent years.
and the projected benefit obligation.
d. The difference between the fair value of plan assets and
the projected benefit obligation.
55. An employer’s obligation for postretirement health benefits
that are expected to be provided to an employee
____ 49. Which statement characterizes defined must be fully accrued by the date the
contribution plans? a. Employee is fully eligible for benefits
b. Employee retires
a. They are more complex in construction than defined benefit
c. Benefits are utilized
plans.
d. Benefits are paid
b. The employer’s obligation is satisfied by making the
appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contribution are made in equal amounts by employer and 56. The projected benefit obligation is the measure of
employees. obligation that
a. Can no longer be used under GAAP as an estimate for
reporting the service cost component of pension expense.
____ 50. Which of the following components should not be b. Is not an allowable estimate for reporting the service cost
included in the calculation of net pension cost component of pension expense for defined benefit plan.
c. Is one of several allowable estimates for reporting the
recognized for a period by an employer service cost component of pension expense.
sponsoring a defined benefit plan? d. Is the only allowable estimate for reporting the service cost
a. Expected return on plan assets component of pension expense.
b. Amortization of unrecognized past service cost
c. Interest cost
d. Contribution to the fund
____ 57. The conclusion relating to the computation of the b. Commencement of the lease
c. Date of lease agreement
service cost component of pension expense is that d. Date of commitment to the provisions of the lease
a. The projected benefit obligation computed using future
salary levels provides a reasonable measure of present
pension obligation and expense.
b. The projected benefit obligation computed using present
64. It is that portion of the lease payment that is not
salary levels provides a reasonable measure of present fixed in amount but is based on a factor other
pension obligation and expense. than just the passage of time, for example,
c. The projected benefit obligation computed using present
salary levels provides a reasonable measure of future percentage of sales, amount of usage, price index
pension obligation and expense. and market rate of interest.
d. The projected benefit obligation computed using future a. Variable rent c. Bargain purchase option
salary levels provides a reasonable measure of future b. Contingent rent d. Executory cost
pension obligation and expense.

65. Initial direct costs incurred by the lessee in

____ 58. Rent received in advance by the lessor in an
connection with specific leasing activities as in
operating lease shall be recognized as revenue
a. When received c. At the lease expiration negotiating and securing leasing arrangements
b. At the lease inception d. In the period specified by and directly attributable to activities performed
the lease
by the lessee under a finance lease are
a. Included as part of the amount recognized as an asset
under the lease.
____ 59. When should a lessor recognize in income a b. Expensed immediately.
nonrefundable lease bonus paid by a lessee on c. Deferred and amortized over the lease term.
d. Included in the minimum lease payments at present value.
signing an operating lease?
a. When received c. At the lease expiration
b. At the inception of the d. Over the lease term
lease 66. If there is reasonable certainty that the lessee will
obtain ownership by the end of the lease term,
the depreciation of the leased asset is based on
____ 60. Lease payments under an operating lease shall be
the
recognized as an expense in the income statement a. Useful life of the asset
on b. Lease term
a. Straight line basis over the lease term unless another c. Useful life of the asset or lease term, whichever is shorter
systematic basis is representative of the time pattern of the d. Useful life of the asset or lease term, whichever is longer
user’s benefit.
b. Diminishing balance basis
c. Sum of units basis 67. The interest rate implicit in the lease is the
d. Cash basis
discount rate that causes the aggregate of the
present value of the minimum lease payments
____ 61. When equipment held under an operating lease is and the unguaranteed residual value to be equal
subleased by the original lessee, the original to the
lessee would account for the sublease as a. Fair value of the leased asset
a. Operating lease c. Direct financing lease b. Fair value of the leased asset and initial direct cost of the
b. Sales type lease d. Finance lease lessor
c. Fair value of the leased asset and initial direct cost of the
lessee
d. Gross investment in the lease
____ 62. Which statement characterizes an operating
lease?
a. The lessee records depreciation and interest. 68. A cancelable lease is deemed noncancelable when (choose
b. The lessee records the lease obligation related to the the incorrect one)
leased asset. a. The lease can be canceled only upon the occurrence of a
c. The lessor transfers title of the leased property to the remote contingency
lessee for the duration of the lease term. b. The lease can be canceled without the permission of the
d. The lessor records depreciation and lease revenue. lessor
c. The lessee, upon cancelation, enters into a new lease for
the same or an equivalent asset with the same lessor.
____ 63. It is the date on which the lessee is entitled to d. The lease can be canceled only upon payment of a penalty
of such magnitude that the lessee shall be discouraged
exercise its right to use the leased asset. from cancelling the lease
a. Inception of the lease
____ 69. The classification of a lease is normally carried out 75. A lease contains a bargain purchase option. In
a. At the end of the lease term determining the lessee’s capitalizable cost at the
b. After a “cooling off” period of one year
c. At the inception of the lease beginning of the lease term, the payment called
d. When the entity deems it to be necessary for by the bargain purchase option would be
a. Substracted at its present c. Added at its present value
value
____ 70. Where there is a lease of land and building and b. Added at its present value d. Substracted at its exercise
the title to the land is not transferred, generally price

the lease is treated as if

a. The land is finance lease and the building is a finance 76. What are the three types of period costs that a
lease.
b. The land is a finance lease and the building is an operating lessee experiences with finance leases?
lease. a. Interest expense, amortization expense, executory costs
c. The land is an operating lease and the building is a finance b. Amortization expense, executory costs, lease expense
lease. c. Executory costs, interest expense, lease expense
d. The land is an operating lease and the building is an d. Lease expense, executory costs, initial direct costs
operating lease.

77. At its inception, the lease term of Lease Z is 50%

____ 71. The lease of land and building when split cause of the economic life of the leased property but
difficulty in the allocation of the minimum lease the lease contains a bargain purchase option. The
payments. In this case, the minimum lease lessee should record Lease Z as
payments should be split a. Neither asset nor liability c. Asset and a liability
a. According to the relative fair value of the two elements b. Asset but not a liability d. Expense
b. By the entity based on the useful life of the two elements
c. Using the sum of the digits method
d. According to any fair method devised by the entity 78. At the inception of a finance lease, the
guaranteed residual value should be
a. Included as part of minimum lease payments at present
____ 72. The classification of a lease as either operating of value
finance lease is based on b. Included as part of minimum lease payments at future
a. The length of the lease value
b. The transfer of the risks and rewards of ownership c. Included as part of minimum lease payments only to the
c. The minimum lease payments being at least 50% of the fair extent guaranteed residual value is expected to exceed
value estimated residual value
d. The economic life of the asset d. Excluded from minimum lease payments

____ 73. Which of the following situations would prima facie lead to a 79. For a finance lease, the amount recorded initially
lease being classified as an operating lease? by the lessee as a liability should
a. Transfer of ownership to the lessee at the end of the lease a. Exceed the present value of the minimum lease payments
term b. Exceed the total of the minimum lease payments
b. Option to purchase at a value below the fair value of the c. Not exceed the fair value of the leased property at the
asset inception of the lease
c. The lease term is for a major part of the asset’s life d. Equal the total of the minimum lease payments
d. The present value of the minimum lease payments is 50%
of the fair value of the asset

80. The lessee’s net carrying value of an asset from

____ 74. Generally accepted accounting principles require the capitalization of a lease would be periodically
that certain lease agreements be accounted for as reduced by
a. Total minimum lease payment
purchases. The theoretical basis for this treatment b. Portion of the minimum lease payment allocable to the
is that a lease of this type interest
a. Effectively conveys all of the benefits and risks incident to c. Portion of the minimum lease payment allocable to
the ownership of property. reduction of the lease liability
b. Is an example of form over substance. d. Depreciation of the asset
c. Provides the use of the leased asset to the lessee for a
limited period of time.
d. Must be recorded in accordance with the concept of cause 81. The lessee’s lease liability for a finance lease
and effect.
would be periodically reduced by the total
 a. Minimum lease payment plus the depreciation of the
related asset
b. Minimum lease payment less the depreciation of the 88. An entity leased a new machine having an expected useful life
related asset of 12 years. The noncancelable lease term is 10 years, and the
c. Minimum lease payment less the portion allocable to at the end of the
entity may exercise a purchase option
interest
d. Minimum lease payment noncancelable term. The machine shall be
capitalized by the entity and depreciated over
a. 9 years c. 10 years
____ 82. Which date is used to identify the inception of a b. 12 years d. 10 or 12 years at entity’s
lease? option
a. The date of the lease agreement
b. The date of the commitment by the parties to the principal
provisions of the lease 89. If the residual value of a leased asset is greater
c. The earlier of the date of the lease agreement and the date than the amount guaranteed by the lessee
of commitment by the parties to the principal provisions of a. The lessee pays the lessor for the difference.
the lease b. The lessee recognizes a gain at the end of the lease term.
d. The later of the date of the lease agreement and the date c. The lessee has no obligation related to the residual value.
of the commitment by the parties to the principal provisions d. The lessor pays the lessee for the difference.
of the lease

90. Net investment in the lease is equal to the

____ 83. Which of the following is not included in the definition of a. Gross investment in the lease less unearned finance
minimum lease payments? income
a. Any payment required by a bargain purchase option that is b. Cost of the leased asset
reasonably certain. c. The minimum lease payments
b. Costs for services and taxes to be paid by and reimbursed d. The minimum lease payments less unguaranteed residual
to the lessor. value
c. Required payments over the lease term .
d. Any amounts guaranteed by a party related to the lessee.
91. Lessors shall recognize asset held under a finance
lease as a receivable at an amount equal to the
____ 84. The accounting concept that is principally used to a. Gross investment in the lease
classify leases into operating and finance is b. Net investment in the lease
a. Substance over form c. Neutrality c. Gross rentals
b. Prudence d. Completeness d. Residual value, whether guaranteed or unguaranteed

____ 85. part of the minimum lease

Which of the follwoing is not 92. Initial direct cost incurred by the lessor under a sales type

payments from the standpoint of the lessee? lease are

a. Charge to unearned income in the first period of the lease
a. The minimum rental payments called for by the lease.
term.
b. Any guarantee the lessee is required to make at the end of
b. Charge to cost of sales in the first period of the lease term.
the lease term regarding any deficiency from the specified
c. Deferred and allocated over the lease term in proportion to
minimum.
the recognition of rent revenue.
c. Any estimated residual value at the end of the lease term.
d. Deferred and allocated over the lease term on a straight
d. Any payment the lessee must make at the end of the lease
line basis.
term to purchase the leased property under a bargain
purchase option.

93. The profit on a finance lease transaction for lessors who are
____ 86. From the standpoint of the lessee, the minimum lease manufacturers or dealers shall
payments include all of the following, except a. Not be recognized separately from finance income.
a. The guaranteed residual value. b. Be recognized in the normal way on the transaction.
b. The lessee’s obligation to pay executory cost. c. Only be recognized at the end of the lease term.
c. The bargain purchase option. d. Be allowed on a straight line basis over the lease term.
d. Any payment that the lessee must make upon failure to
extend or renew the lease.
94. Which of the following statements characterizes a
sales type lease
____ 87. Which of the following would be considered an a. The lessor recognizes only interest revenue over the life of
executory cost? the asset.
a. Minimum lease payment. b. The lessor recognizes only interest revenue over the lease
b. Interest expense incurred. term.
c. Bargain purchase option. c. The lessor recognizes a dealer’s profit at lease inception
d. Maintenance cost. and interest revenue over the lease term.
 d. The lessor recognizes a dealer’s profit at lease inception 2.
and interest revenue over the life of the asset. c. The reduction of the lease obligation in year 1.
d. One-tenth of the original lease liability.

____ 95. For a finance lease, the amount recorded initially

by the lessee as a liability should normally 97. A six-year finance lease expiring on December 31
a. Exceed the total of the minimum lease payments. specifies equal minimum annual lease payments.
b. Exceed the present value of the minimum lease payments Part of this payment represents interest and part
at the beginning of the lease.
c. Equal the total of the minimum lease payments. represents a reduction in the net lease liability.
d. Equal the present value of the minimum lease payments at The portion of the minimum lease payment in the
the beginning of the lease.
fifth year applicable to the reduction of the net
lease liability should be
____ 96. A lessee had a ten-year finance lease requiring a. Less than in the fourth year
b. More than in the fourth year
equal annual payments. The reduction of the c. The same as in the sixth year
lease liability in year 2 should equal d. More than in the sixth year
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
___ 98. Under a direct financing lease, straight line method. 20. A
d. Shall be recognized in full as
the excess of aggregate rentals revenue at the inception of the 21. D
over the cost of leased lease.
22. A
property shall be recognized TOA QUIZZER 4
as revenue of the lessor Answer Section 23. C
a. In increasing amounts during the
term of the lease. MULTIPLE CHOICE 24. A
b. In constant amounts during the
term of the lease. 1. A 25. A
c. In decreasing amounts during the
term of the lease. 2. C 26. A
d. After the cost of leased property
has been fully recovered through 3. A 27. A
rentals.
4. A 28. A

5. D 29. C
____ 99. The excess of the fair value of
leased property at the 6. A 30. A
inception of the lease over its 7. B 31. A
carrying amount shall be
8. D 32. B
classified by the dealer lessor
as 9. C 33. C
a. Unearned income from a sales
type lease 10. A 34. A
b. Unearned income from a direct
financinf lease 11. A 35. B
c. Manufacturer’s profit from a sales
type lease 12. A 36. D
d. Manufatcturer’s profit from a direct
financing lease 13. C 37. C

14. A 38. A
____ 100. In a lease that is recorded as a
15. A 39. C
sales type lease by the lessor
interest revenue 16. C 40. A
a. Does not arise.
b. Shall be recognized over the 17. A 41. C
period of the lease using the
interest method. 18. C 42. D
c. Shall be recognized over the
period of the lease using the 19. C 43. A
44. A 79. C

45. B 80. D

46. D 81. C

47. B 82. C

48. D 83. C

49. B 84. A

50. D 85. C

51. B 86. B

52. B 87. D

53. C 88. C

54. C 89. C

55. A 90. A

56. D 91. B

57. A 92. B

58. D 93. B

59. D 94. C

60. A 95. D

61. A 96. A

62. D 97. B

63. B 98. C

64. B 99. C

65. A 100. B

66. A

67. B

68. B

69. C

70. C

71. A

72. B

73. D

74. A

75. C

76. A

77. C

78. A