1.Lessees generally prefer capital leases over operating leases because capital leases are a convenient form of an off-balance sheet financing.

a.True

b.False

c.Neither because operating leases are a type of capital leases

2. One of the reasons for the collapse of Enron was that its balance sheet was burdened with exaggerated asset values that were required by its choice to use operating leases to accounts for their heavy equipment.

a.True

b.False

c.Neither because Enron did not have any assets

3.The new FASB standard for lease accounting will allow lessees to classify most of their capital leases as operating leases, thereby helping them report a higher operating income.

a.True

b.False

c.Neither because the new standard does not address lease accounting

4. The new FASB standard makes use of two classifications for leases: Type A and Type B.

a.True

b.False

c.Neither because it "depends" on whether the company wants to use the new standard.

5. How should we report lease liabilities?

a. All should be current liabilities.

b. All should be noncurrent liabilities.

c. Current portions in current liabilities and the remainder in noncurrent liabilities.

d. Deferred credits.

6. Which of the following is correct for a sales-type lease?

a. Sales price includes PV of unguaranteed RV (residual value).

b. PV of guaranteed RV is subtracted to compute COGS.

c. Gross profit calculation does not depend on whether RV is guaranteed or unguaranteed.

d. None of the above.