Accounting for Leases

Question 1

An operating lease is like a ______

Answer 1

rental

Question 2

A capital lease/finance lease is like a _______

Answer 2

sale (in substance

Question 3

A lease bonus is classified as an ______ (deferred charge) and _____ using the straight line method over the life of the lease

Answer 3

asset; amortized

Question 4

Leasehold improvements are permanently affixed to the property and reverts back to the ______ at the termination of the lease

Answer 4

lessor

Question 5

Leasehold improvements should be ________ and depreciated over the ________ of the lease life or asset/improvement life

Answer 5

capitalized; lessor

Question 6

A rent kicker is a _______ expense

Answer 6

period

Question 7

A refundable security deposit is an ______ until refunded by the lessor

Answer 7

asset

Question 8

JE to record capitalized lease (lessee)

Answer 8

DR: fixed asset - leased property
CR: Liability - obligation under capital lease

Question 9

Lessee capital lease criteria (GAAP)

Answer 9

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

Question 10

Lessor sales-type/direct financing type criteria (GAAP) (All 3 must be met)

Answer 10

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

Question 11

Sales-type lease 2 proftis

Answer 11

gain on sale & interest income

Question 12

Direct financing lease (1 profit)

Answer 12

interest income

Question 13

Lessee records the lease as an asset and a liability at the lower of ___ _____ or ____ for a capital lease

Answer 13

fair value; cost

Question 14

Required payments, bargain purchase option, and guaranteed residual value are _______ in the cost

Answer 14

included

Question 15

Executory costs and optional buyouts are _______ in the cost

Answer 15

excluded

Question 16

Interest rate uses the lower of the rate implicit in the ______ or the _______ incremental borrowing rate

Answer 16

lease; lessee’s

Question 17

When calculating the PV of the minimum lease payments, bargain purchase options or guaranteed residual uses the PV of _____

Answer 17

$1

Question 18

When ownership transfer and written bargain are present, use the ____ ____ _____ of the asset when computing deprectiation

Answer 18

estimated economic life

Question 19

When 90% FV and 75% life are present, use the ____ _____ if the lessee does not take ownership when computing depreciation

Answer 19

lease term

Question 20

Under IFRS, use the _____ ___ the lease term and the useful life of the asset when calculating depreciation

Answer 20

shorter of

Question 21

Future minimum lease/rental payments for each of the next ____ years should be disclosed

Answer 21

five

Question 22

In a sale-leaseback, ______ all gain and amortize the leased asset if over _____ of rights retained

Answer 22

defer; 90%

Question 23

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

Answer 23

present value; recognized immediately; 10-90%

Question 24

In a sale-leaseback, ______ gain or loss immediately at the time of transaction when ______ of rights retained

Answer 24

less than 10%

Question 25

Losses are recognized _______

Answer 25

immediately

Question 26

In a finance lease, the seller/lessee _____ and _______ any profit from the sale of a leaseback transaction over the lease term

Answer 26

defers; amortizes

Question 27

If the original lease was an operating lease, the sublease is a ______ ______

Answer 27

operating lease

Question 28

If the original lease was a capital lease due to ownership transfer or written bargain purchase option, the sublease is a _____ ______

Answer 28

capital lease

Question 29

If the original lease was a capital lease due to 90% FV or 75% Life, the sublease will be an ______ ______

Answer 29

operating lease

Question 30

Guaranteed residual value must be _______ in the calculation of the present value of the minimum lease payments.

Answer 30

included

Question 31

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:

Answer 31

an asset valuation allowace

Question 32

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.

Answer 32

present value