Area 3

Question 1

What is the gross profit in a finance type lease?

Answer 1

The gross profit in a finance typpe lease is the fair value (meaning PV of min lease payments) of the asset and the cost or carrying value of the asset

Question 2

What is annuity due?

Answer 2

Annuity due is when the payment is at the beginning of each period

Question 3

What is ordinary annuity?

Answer 3

Ordinary annuity is when the payment is at the end of each period

Question 4

What are the 5 factors, where if ANY ONE is true, it is a finance lease?

Answer 4

1. The lease transfers ownership
2. Contains a BPO
3. Lease term is 75% or more of useful life
4. PV on min lease payment 90% or more of FV of the asset
5. The leased asset does not have an alternative use