6: Leases, Derivatives, Foreign Currency, and Income Taxes

Question 1

Capital lease if it meets one of four qualifications from the lessee perspective

Answer 1

OWNS:
Ownership: transfers to lessee at end
Written: Bargain purchase option
-Depreciate over  entire life
Ninety: 90 percent of lease property FV <= PV of lease 
              payments
Seventy five: 75 percent of economic life is being committed in lease term.
- Depreciate over lease term.

Question 2

Capital lease if it meets all of three qualifications from the lessor perspective

Answer 2

LUC:
Lessee: lessee owns the property
Uncertainties: no uncertainties regarding any unreimbursed cost incurred by lessor
Collectability: lease payment is reasonably predictable

Question 3

Lessee depreciation on a capital lease when it Owns or has a Written bargain

Answer 3

Depreciate over the life of the asset.

Question 4

Lessee depreciation on a capital lease when it fulfills the Ninety percent or Seventy five percent rules

Answer 4

Depreciate over the life of the lease

Question 5

Sales Leaseback rules for a gain when the PV of the payments is 90% or above the sales price

Answer 5

Defer all the gain

Question 6

Sales Leaseback rules for a gain when the PV of the payments is 10% or below the sales price

Answer 6

Recognize all of the gain

Question 7

Sales Leaseback rules for a gain when the PV of the payments is between 10% and 90% of the sales price

Answer 7

Allocate the gain first to the PV of the payments and defer it, recognize the excess right now.

Question 8

What interest rate to use when you have the implicit, lessor’s rate, and …

Answer 8

The lessor’s rate is used only if it’s lower or the implicit rate is not known.

Question 9

Buying a call option the hope is

Answer 9

The price will increase

Question 10

Buying a put option the hope is

Answer 10

The price will decrease

Question 11

Long/ buy has a profit if

Answer 11

Profit if the price increases

Question 12

Short/ sell has a profit if

Answer 12

Profit if the price decreases

Question 13

Permanent tax differences

Answer 13

-Municipal bond

Question 14

Temporary tax differences

Answer 14

-