D105 Intermediate Accounting III - Set 2 - Part 1

Correct Answer: A contract that conveys the right to control the use of an identified asset for a specific period of time

A Lease is a contract that allows the lessee to control the use of an identified property, plant, or equipment for a specific period in exchange for consideration.

Correct Answer: Tests used to determine whether a lease should be classified as a finance or operating lease

Lease Classification Tests help determine whether a company should use the finance lease approach or the operating lease approach, based on the terms of the lease.

Correct Answer: The amount recorded by the lessor under a sales-type lease

The Lease Receivable is recorded by the lessor under a sales-type lease, reflecting the amount the lessee is expected to pay over the lease term.

Correct Answer: The length of the lease agreement

The Lease Term refers to the length (or duration) of the lease contract, during which the lessee has the right to use the leased asset.

Correct Answer: A test used to determine whether a lease should be treated as a finance lease based on its length

The Lease Term Test determines whether the lease term represents a major part (typically 75% or greater) of the asset's economic life, which would classify it as a finance lease.

Correct Answer: The person who receives the right to use an asset in return for cash payments under a lease

The Lessee is the party that leases and gains the right to use property owned by the lessor in exchange for regular payments under the lease terms.

Correct Answer: The person who gives the lessee the right to use a property for a specific period under a lease

The Lessor is the party that owns the leased asset and grants the lessee the right to use it for a set period in exchange for payments.

Correct Answer: A pension plan where the employer bears the entire cost

In a Noncontributory Pension Plan, the employer is responsible for providing the full amount of funding for the employee's retirement benefits.

Correct Answer: Errors that will not self-correct and require adjustment in future periods

Noncounterbalancing Errors are accounting mistakes that take longer than two periods to correct themselves and often require adjusting journal entries.

Correct Answer: Activities related to the production and sale of goods or services

Operating Activities are those involved in the company's core business operations, such as producing goods, selling services, and managing inventory and receivables.

Correct Answer: A lease where the lessee obtains the right to use an asset but not ownership

In an Operating Lease, the lessee is allowed to use the asset but does not own it, and the lease is usually shorter than the asset's economic life.

Correct Answer: The initial difference between the tax basis and the book basis of an asset or liability

An Originating Temporary Difference refers to the initial gap between the book and tax basis of an asset or liability, which will reverse over time as the differences are settled.

Correct Answer: Measures of the units completed on a project when calculating progress under the percentage-of-completion method

Output Measures assess the number of units or milestones completed in a project, often used in the percentage-of-completion method to recognize revenue.

Correct Answer: A corporation that has acquired more than 50% of another corporation's voting interest

A Parent Company is a corporation that holds a controlling interest in another corporation, typically more than 50% of the subsidiary's voting shares.

Correct Answer: An arrangement where an employer provides benefits to retired employees

A Pension Plan is an arrangement in which employers provide retirement benefits (payments) to their employees for services rendered during their working years.

Correct Answer: A method for recognizing revenue and profit throughout the life of a long-term contract based on the progress made

The Percentage-of-Completion Method recognizes revenue over time, based on the progress made toward completing a long-term project, such as construction.

Correct Answer: Differences between taxable income and pretax financial income that will not reverse in future periods

Permanent Differences arise when items are included in financial accounting income but not in taxable income, or vice versa, and do not reverse in future periods.

Correct Answer: The income before income taxes

Pretax Financial Income refers to the company's earnings before accounting for income taxes, often called income before income taxes in financial reports.

Correct Answer: A relationship where the principal provides goods and the agent arranges for their sale to customers

In a Principal-Agent Relationship, the principal has the obligation to provide goods or services, and the agent facilitates the delivery of those goods or services to the customer.

Correct Answer: A pension plan that meets IRS requirements and provides tax benefits

A Qualified Pension Plan adheres to IRS guidelines, allowing employers to deduct contributions and employees to defer taxes on benefits until they are received.