USGAAP and IFRS Provide Criteria for Distinguishing Operating Leases from Capital

question 23

Multiple Choice

U.S.GAAP and IFRS provide criteria for distinguishing operating leases from capital leases.Which of the following is not true?

• A)The criteria attempt to identify the entity, whether lessor or lessee, that enjoys the benefits and incurs the risk of the leased asset.
• B)When the lessor enjoys the benefits and bears the risk, the lease is an operating lease.
• C)When the lessee enjoys the benefits and bears the risk, the lease is a capital lease.
• D)IFRS provides more specific criteria for identifying the entity enjoying the rewards and incurring the risk.
• E)Firms cannot currently apply the fair value option to capital leases.

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Definitions:

Steering Wheel

The component of a vehicle that the driver uses to control the direction of the vehicle by turning it in the desired direction.

Degrees

A unit of measurement used to determine angles or temperature.

Rack-and-pinion

A type of linear actuator that comprises a circular gear (the pinion) engaging a linear gear (the rack), converting rotary motion into linear motion.

Parallelogram Steering

A steering linkage design in many vehicles where the linkage forms a parallelogram, allowing the wheels to move parallel to each other during turns.