B4-M7 Leases

Question 1

What are the type of Lessor leases

Answer 1

Sales type - ALL risks transferred (OWNES by lessee)
Direct financing - MOST risks transferred. No OWNES by lessee but meets PC requirements
Operating Lease - SOME risks transferred (Now OWNES and does not meet PC requirements)

Question 2

Lease criteria to be considered finance lease (OWNES) - finance lease -sales type if any is true

Answer 2

• Ownership transfer at the end of the lease
• Written option to purchase (bargain)
• NPV equates to substantially (90%) equal to the FV of asset
• Economic life of asset= lease term accounts for over 75% of Economic life
• Specialized purpose

Question 3

What does trigger the direct financing?

Answer 3

PC
When cost and fair value of the leased asset are equal at the start of the lease