Question

4) Which of the following is not true about a capital lease? A. The entire amount of each lease payment is considered rent expense. B. Is used when the assets leased is in substance C. When a capital lease is used an asset is recorded and depreciated over its useful life. D. When a capital lease is used interest expense is incurred on each payment. 5) Which of the following is NOT a true statement about bonds? A. A company that issue bonds is (typically) borrowing money from the public not a specific person or institution. B. A bond's prices in the secondary market changes as the market interest changes over time. C. Bonds can be turned in by their holders prior to their maturity date and receive the bond's face value. D. When not have to pay the face value of the bonds if the bonds are converted before the bond's maturity date. a company issues convertible bonds it will 6) In a noninterest-bearing note, the amount borrowing is which of the following? A. face value of the note B. face value of the note less the discount on note C. face value of the note plus a premium on the note payable D. face value of the note less interest expense calculated at the face rate of interest 7) A manufacturing company using full-absorption costing can increase net income by which of the following. A. Increasing production and increasing ending inventory at the end of the year C. Writing ending inventory down to its fair value D. All of the above

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Answer 1

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4)	Which of the following is not true about capital lease?
Ans:	Option A. The entire amount of each lease payment is considered as Rent Expense.
Explanation:	Capital lease is a type of lease in which lessee takes the asset on lease for substantial use and asset is transferred at the end of its economic life to the lessee. The lessee records the present value of minimum lease payments as Right of use asset and lease liability. Thus asset is recorded in capital lease and depreciated over its useful life.The amortization achedule of lease liability is prepared in which lease payments are divided into 2 components i.e. interest expense and principal reduction of lease liability. The lessee is treated like the owner of the asset i.e capital lease is used when the asset leased is in substance purchased. While in opearting lease, asset is taken on lease for use for some time only and lessor remains the owner of the asset during the period of lease and lease payments are treated as rent expense.

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