ACG4111 Exam 2 Review: Chapter 15 Leases Flashcards
To a lessee, what is the cost basis of a leased asset?
The PV of the minimum lease payments + PV of non-lease components
Calculate amount of annual lease payment made at beginning of each year
Selling price / PV of annuity due (n=years r=interest rate)
What is true of reassessment of the lease term?
If the lessee reassesses the lease term, it must remeasure the lease liability as the present value of the remaining payments.
What is the next effect of the lease on earnings?
An expense of the monthly payment at the end of each month
Calculate the balance of right of use asset after 2 years of a 10 year finance lease
PV - (PV / lease term) * years passed
For the lessee to account for a lease as a finance lease, the lease must meet:
Any of the five criteria specified by GAAP regarding accounting for leases
Calculate the total decrease in earnings on the IS
A. (PV - annual lease payment) * interest rate * 6/12 (if only half year has passed)
B. PV / lease term * 6/12 (if only half year has passed)
= A+B
Calculate amount lessee should report as lease liability
PV - annual payment = outstanding balance
Outstanding balance - (annual payment - (outstanding balance * interest rate))
= lease liability
Calculate total amount for lessee to record on IS after 1 year
(PV - annual payment) * implicit rate
Calculate amount of right-of-use asset for lessor
Lease payment * PVAD factor (n = lease term, i = implicit rate)
Calculate lessor’s amortization expense per year
(PV - residual value) / lease term or useful asset life (whichever is shorter)
Journal entry for lessor to record return of equipment at end of lease term
Debit cash (residual value - appraised value)
Initial direct costs incurred by lessor are deferred and expensed over lease term
In both an operating ;ease and a sales-type lease with no selling profit
Calculate interest revenue after 2 years, assuming paid one at beginning of lease term
PV - annual payment = outstanding balance 1
OBS 1 - (annual payment - (outstanding balance 1 * interest rate)) = OBS 2
OBS 2 * interest rate = interest revenue for year 2
Cost of a leasehold improvement is allocated as depreciation expense over its useful life to the lessee which will be
The shorter of lease term or physical life of asset.
Calculate lease payable to include in current liabilities for a finance lease of lessee
(PV - annual payment) * interest rate = interest expense
Annual payment - interest expense = lease payable
Total expenses over life of an operating lease compared to a finance lease
Expenses of an operating lease is greater than a finance lease
Calculate the amount of annual lease payments
(PV - (purchase option * PV of 1 (n=lease term, r=interest rate))) / PV of annuity due
Calculate lessee’s annual amortization of right-of-use asset under straight-line
(PV - salvage value) / asset life
Calculate interest expense for lessee (BBC Co. (2 parter))
If Jan 2018 - Dec 2018: (PV + annual payment) * interest rate
If Jan 2018 - Dec 2019: (PV - annual payment) * interest rate
Calculate amortization expense for lessee (BBC Co. (2 parter))
Annual payment - (PV - annual payment) * interest rate
What amount if any should be added to right-of-use asset and lease payable under this rental agreement? (On Jan 1st, McBK stores leased retail space for five year-period)
No additional amount should be added.
Journal entry for lessor to record at beginning of lease term
Credit to deferred revenue (semiannual lease payments)
Calculate depreciation expense of lessor after 1 year
PV / asset life
