302020 LESSEE ACCOUNTING 3F

Question 1

Both quantitative and qualitative disclosures are required for both the lessor and lessee. Which of the following is an incorrect matching of the information and party to the lease?

Lessee: information about risks associated with residual values

Lessor: gross investment and net investment in the lease

Lessor: contractual obligations for each of the five succeeding years

Lessee: operating lease costs

Answer 1

Lessee: information about risks associated with residual values

Lease obligations and lease costs are generally related to the lessee, while revenues and investments are generally related to the lessor. Information about risks associated with residual values is reported by the lessor, not the lessee, as it affects the overall collectibility of the lease receivable.

Question 2

Disclosure

Answer 2

The dictionary definition of the term “disclosure” is “revealing or uncovering.” In general, the purpose of financial reporting is to reveal an entity’s financial information. Often, the term “disclosure” relates to stating additional facts or explanations in a financial statement or auditor’s report. In financial statements, disclosure can be achieved by parenthetical or additional reporting of information after a line item by cross-referencing to another item, by footnotes, and by supplementary verbal and scheduled information. An additional explanatory paragraph can also be added to an auditor’s standard opinion for disclosure purposes.

Question 3

Lease Receivable

Answer 3

A lease receivable is a lessor’s right to receive lease payments arising from a sales-type lease or a direct financing lease plus any amount that a lessor expects to derive from the underlying asset following the end of the lease term to the extent that it is guaranteed by the lessee or any other third party unrelated to the lessor, measured on a discounted basis.

FASB ASC Glossary

Question 4

Lessee

Answer 4

A lessee is an entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.

FASB ASC Glossary

Question 5

Lessor

Answer 5

A lessor is an entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.

FASB ASC Glossary

Question 6

Salvage Value

Answer 6

Salvage value is the amount estimated to be recoverable on disposal (by sale, trade-in, or other means) or retirement from service of an operational asset (net of any costs of disposal, such as dismantling and selling expenses). The remaining carrying amount, after deduction of salvage value, is then fully depreciated (depreciated to the end of the asset’s useful life).

Question 7

2363.20

Answer 7

Qualitative

Required qualitative disclosures include a general description of the leasing arrangement, including information about lease contracts, significant assumptions and judgments, variable lease payments, options for extension, options for purchase, nonlease payments, related parties, and residual value. Lessees should also disclose restrictions, subleases, and leases that create significant rights and obligations that have not yet commenced.

Question 8

2363.21

Answer 8

Quantitative

Lessees are required to disclose the following quantitative information:

Finance lease costs, with separate disclosure of interest and amortization of right-of-use (ROU) asset (The total of these two is reported together in the income statement as lease expense.)

Operating lease cost

Short-term lease cost, excluding expenses relating to leases with a lease term of one month or less

Variable lease cost

Sublease income, disclosed on a gross basis, separate from the finance or operating lease expense

Net gain or loss recognized from sale/leaseback transactions

Weighted-average lease term of operating leases and finance leases

Weighted-average discount rate

A reconciliation of opening and closing balances of the right-of-use asset

Contractual obligations (and options that the lessee is “reasonably certain” to exercise) for each of the five succeeding fiscal years, plus a total for the remaining years

A maturity analysis of lease liabilities for each of the first five years after the balance sheet date and in total thereafter, including a reconciliation of the undiscounted cash flows to lease liabilities on the balance sheet