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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
Which of the following statements pertaining to lease accounting is not correct?
A. For a particular lease agreement, the amount of interest expense recorded by the lessee can be different than the amount of interest revenue recorded by the lessor during the same time period.
B. The current ratio will be decreased over the lease term if a lessor treats a lease as a capital lease rather than an operating lease.
C. It is very challenging for different firms to treat virtually identical leases dissimilarly due to the fact that the required lease capitalization criteria are difficult to circumvent.
D. The required disclosures pertaining to operating leases require the lessee to disclose what the impact on the financial statements would have been if the lease would have been treated as a capital lease.
Answer
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