If a Capital Lease Has a Guaranteed Residual Value, How

question 19

Multiple Choice

If a capital lease has a guaranteed residual value, how should the lessee account for it at the inception of the lease?

• A) The initial asset and liability should be increased by the present value of the residual value.
• B) The initial asset and liability should be increased by the amount of the residual value.
• C) The initial asset and liability should be decreased by the present value of the residual value.
• D) The initial asset and liability should be decreased by the amount of the residual value.

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Definitions:

Discharged

Released from liability for a negotiable instrument.

Negotiable Instrument

A written, transferable document signed by the maker or drawer, containing an unconditional promise or order to pay a specified amount of money on demand or at a set time.

Material Alteration

A significant change or modification to a document or item that changes its legal effectiveness or meaning.

Holder In Due Course

A person who has acquired a negotiable instrument in good faith for value and without notice of any defects.