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EF acquired a copy machine under a three-year operating lease. EF will pay nothing in year one and then will pay $6,000 in years two and three. The estimated economic useful life of the machine is six years.
Which THREE of the following statements are true in respect of how EF will account for its use of the machine and the associated operating lease payments?
Suggested Answer: A, B, C
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40 comments · newest first
ED
Edmond
11 months ago
Not sure about that $12,000 asset claim, seems off.
CR
Cristen
11 months ago
$4,000 charge to profit or loss each year sounds right.
KA
Kaitlyn
11 months ago
Wait, how can they just skip payments in year one?
YU
Yuonne
12 months ago
I agree, no expense in year one makes sense!
DO
Domingo
12 months ago
EF won't record any expense in year one, that's true.
AN
Anika
1 year ago
I feel like B is true since they aren't making any payments in year one, but I’m not sure how that affects the overall accounting treatment.
AL
Aleta
1 year ago
I practiced a similar question where we had to calculate lease expenses, and I think E is true because they would spread the payments evenly over the lease term.
GI
Gilberto
1 year ago
I’m a bit unsure about the accruals. I think D might be correct since they have to recognize the lease expense over the lease term, but I’m not completely confident.
SU
Susana
1 year ago
I remember we discussed that operating leases don’t show an asset on the balance sheet, so I think A is definitely false.
DO
Dorthy
1 year ago
I feel pretty confident about this one. Operating leases have specific accounting requirements, and I think I can identify the correct treatments here.
GL
Glory
1 year ago
I'm a bit confused by the different payment patterns in the first and second/third years. I'll need to make sure I understand how to properly account for the uneven lease payments.
BE
Belen
1 year ago
Okay, I think I've got this. The key is to focus on the operating lease nature of the arrangement and the timing of the payments. Let me work through each option.
LI
Lizbeth
1 year ago
This looks like a tricky lease accounting question. I'll need to carefully review the details and think through the accounting treatment step-by-step.
ER
Ernie
1 year ago
This is a good test of my understanding of lease accounting. I'll methodically evaluate each statement and select the three that are true based on the information provided.
LA
Latonia
1 year ago
Hmm, I'm a bit confused by the options. Refactoring to serverless seems like a big change, but the Elastic Beanstalk and EC2 options could work. I'll need to think through the pros and cons of each.
MA
Margurite
1 year ago
I'm feeling a little lost on this one. The wording of the question and options is tripping me up. Maybe I'll come back to it after reviewing my notes on business analysis tasks and responsibilities.
CA
Carmela
1 year ago
This seems like a tricky question. I'll need to think carefully about the factors that affect a fixed iris camera's performance.
JO
Jonell
1 year ago
I'm feeling pretty confident about this one. I'll review the output, identify the significant variables, and then compare the parameter estimates to find the most and least important ones.
JE
Jess
1 year ago
I'm a bit unsure, but I thought that SUAs included a wider range of crimes, not just a small subset. Wouldn't that make B incorrect?
JE
Jennie
1 year ago
An accrual of $4,000 at the end of year one? That's interesting, but shouldn't the full $6,000 payment be recorded as an expense in years two and three?
JU
Justine
1 year ago
EF will not record any expense in year one, but will recognize the expense over the lease term.
RO
Ronald
1 year ago
An accrual of $4,000 at the end of year one is needed to account for the total lease payments over the three-year period.
ST
Stephane
1 year ago
EF will charge $4,000 to profit or loss in each of the three years for this operating lease.
KA
Katheryn
1 year ago
EF will include an accrual of $6,000 at the end of year one for the lease payments.
KA
Kathrine
1 year ago
Yes, the full $6,000 payment will be recorded as an expense in years two and three.
SH
Shoshana
1 year ago
Yes, EF will record no expense in year one for the operating lease charges.
NI
Nicolette
1 year ago
A credit to the bank in year two? I guess that's where the $6,000 payment will go, but I wonder how that affects the overall accounting treatment.
VE
Veronica
2 years ago
Haha, recording no expense in year one? That's like getting a free ride for the first year. I wonder if the IRS would approve of that.
CR
Craig
1 year ago
Ngoc: True, they're just following the guidelines for operating leases.
LA
Lakeesha
1 year ago
User 3: I doubt the IRS would have any issues with that, it's all part of the accounting rules.
NG
Ngoc
1 year ago
User 2: EF lucked out with that one, no expenses to worry about.
CH
Chandra
1 year ago
User 1: Yeah, it's like a freebie for EF in year one.
DE
Dell
2 years ago
Hmm, I'm not sure about including an asset of $12,000 in property, plant, and equipment. Isn't the whole point of an operating lease that we don't record the asset on our books?
EU
Eugene
1 year ago
User 2
LA
Lanie
1 year ago
User 1
WI
Willie
1 year ago
That's correct. We only record the lease payments as expenses over the lease term.
BI
Billi
1 year ago
I think you're right. We wouldn't include the asset in our books for an operating lease.
LA
Layla
2 years ago
I disagree with both of you. I think statement E is true because EF will charge $4,000 to profit or loss in each of the three years.
SO
Son
2 years ago
I agree with you, Sharika. I also believe statement B is true since no expense will be recorded in year one.
SH
Sharika
2 years ago
I think statement A is true because the asset should be recognized at the start of the lease.