CH 15 Leases

Question 1

lessor

Answer 1

the person lending the equipment

Question 2

lessee

Answer 2

user of the equipment

Question 3

what is a lease?

Answer 3

an asset for a specific period of time

Question 4

What is the number one method of external financing?

Answer 4

Leases

Question 5

Why a lease?

Answer 5

though it may be more expensive than buying leasing doesn’t have to worry about some of the financial and risk burdens that a purchaser normally would assume… Therefore the NET cost of leasing is less than the cost of the purchase

Question 6

in journal entries, to what can we compare operational leases?

Answer 6

notes payable

asset
Payable

Question 7

Qualifications to be capital lease

Answer 7

1. Non-cancellable lease AND
2. One of the following must be met
   a. transfer of ownership at end of lease term
   b. BPO exists
   c. . term is 75% or more of expected economic life
   d. PV of minimum payments = to or greater than all of Fair value of leased asset

Question 8

for the lessor, there are 2 additional criteria that must be met to recognize a capital lease

Answer 8

1. Collectability is probable

2. No uncertainty of other costs

Question 9

Journal entries of a capital lease-SALES TYPE

Answer 9

Lease rec
COGS
Sales rev
Inventory

Question 10

Who records depreciation in a lease

Answer 10

whoever has the ASSET on the books

Question 11

What is particular about the first period of a lease?

Answer 11

There is no interest the first period!

Question 12

Annuity due

Answer 12

begin of period payments

Question 13

ordinary annuity

Answer 13

end of period payments