Accounting for Leases Flashcards
An operating lease is like a ______
rental
A capital lease/finance lease is like a _______
sale (in substance
A lease bonus is classified as an ______ (deferred charge) and _____ using the straight line method over the life of the lease
asset; amortized
Leasehold improvements are permanently affixed to the property and reverts back to the ______ at the termination of the lease
lessor
Leasehold improvements should be ________ and depreciated over the ________ of the lease life or asset/improvement life
capitalized; lessor
A rent kicker is a _______ expense
period
A refundable security deposit is an ______ until refunded by the lessor
asset
JE to record capitalized lease (lessee)
DR: fixed asset - leased property
CR: Liability - obligation under capital lease
Lessee capital lease criteria (GAAP)
Ownership transfers at end of lease
Written option for bargain purchase
90% of leased property FV is less than or equal to PV of lease payments
75% or more of asset economic life is being committed in lease term
Lessor sales-type/direct financing type criteria (GAAP) (All 3 must be met)
Lessee “owns” the leased property
Uncertainties do not exist regarding any unreimbursable costs to be incurred by the lessor
Collectability of the lease payments is reasonably predictable
Sales-type lease 2 proftis
gain on sale & interest income
Direct financing lease (1 profit)
interest income
Lessee records the lease as an asset and a liability at the lower of ___ _____ or ____ for a capital lease
fair value; cost
Required payments, bargain purchase option, and guaranteed residual value are _______ in the cost
included
Executory costs and optional buyouts are _______ in the cost
excluded
Interest rate uses the lower of the rate implicit in the ______ or the _______ incremental borrowing rate
lease; lessee’s
When calculating the PV of the minimum lease payments, bargain purchase options or guaranteed residual uses the PV of _____
$1
When ownership transfer and written bargain are present, use the ____ ____ _____ of the asset when computing deprectiation
estimated economic life
When 90% FV and 75% life are present, use the ____ _____ if the lessee does not take ownership when computing depreciation
lease term
Under IFRS, use the _____ ___ the lease term and the useful life of the asset when calculating depreciation
shorter of
Future minimum lease/rental payments for each of the next ____ years should be disclosed
five
In a sale-leaseback, ______ all gain and amortize the leased asset if over _____ of rights retained
defer; 90%
In a sale-leaseback, defer gain up to the ___ ____ of the minimum leaseback payments or capitalized asset. Gain in excess of this amount is ________ ________ when _____ of rights retained
present value; recognized immediately; 10-90%
In a sale-leaseback, ______ gain or loss immediately at the time of transaction when ______ of rights retained
less than 10%
Losses are recognized _______
immediately
In a finance lease, the seller/lessee _____ and _______ any profit from the sale of a leaseback transaction over the lease term
defers; amortizes
If the original lease was an operating lease, the sublease is a ______ ______
operating lease
If the original lease was a capital lease due to ownership transfer or written bargain purchase option, the sublease is a _____ ______
capital lease
If the original lease was a capital lease due to 90% FV or 75% Life, the sublease will be an ______ ______
operating lease
Guaranteed residual value must be _______ in the calculation of the present value of the minimum lease payments.
included
Able sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease under U.S. GAAP. At the time of sale, the gain should be reported as:
an asset valuation allowace
A lessee should record a capital (finance) lease as if he owned the asset at the ______ ______ of the minimum lease payments at the beginning of the lease (excluding any “executory costs”), not to exceed fair market value.
present value
