Chapter 5

Question 1

Present Values of Annuities

Answer 1

Ordinary Annuity/Annuity in Arrears- start later

Annuity Due/Annuity in Advance - start now

Question 2

Lessee

Answer 2

Operating lease

Capital (US) or Finance (IFRS)

Question 3

Lessor

Answer 3

Operating Lease

Sales-Type or Direct Finance (US) or Finance (IFRS)

Question 4

Lease Bonus

Answer 4

Lessee - capitalized and amortized

Lessor - deferred and expensed

Question 5

Free Rent

Answer 5

Straight Line
Dr Rent Expense
Cr Rent Payable

Dr Rent Expense
Dr Rent Payable
Cr Cash

Question 6

Rent Kicker

Answer 6

Rent Expense

Question 7

Security Deposit

Answer 7

Refundable - Receivable/Payable

Non-refundable - Prepaid Expense/Deferred

Question 8

Occupancy Expense

Answer 8

Rent + depreciation

Question 9

Lessee - Capital Lease

US GAAP - OWNS

Answer 9

Any of the ff:
O -  Ownership transferred
W -  Written Bargain Purchase
N -   PV of min lease payments is >= 90% of FV
S -  Lease term >= 75% of economic life

N and S - not applicable if last 25% of original life

Question 10

Lessor - Sales type or Direct Finance

US GAAP - LUC

Answer 10

All of the ff:
L Leasee owns
U Uncertainties for unreimbursable costs
C Collectibility is reasonably predictable

Question 11

Lessee/Lessor - Finance

IFRS - OWESFACS

Answer 11

Only 1:
O - Ownership 
W - Written Bargain
E -  Economic life (major part)
S - Substantial PV vs FV
F -  Fluctuation - lessee
A -  Ability to rent at low
C -  Cancel lease - lessee losses
S - Specialized nature

Question 12

Lessee Accounting

Answer 12

Dr Leased Asset
Cr Liability

Lower of PV of minimum lease payments or FV
Lower of lessee’s incremental borrowing or implicit rate

Question 13

PV of lease payments

Answer 13

US GAAP
Min lease payments + bargain purchase option + guranteed residual value
- No excutionary costs and optional buyouts
IFRS
Initial direct costs only

Question 14

Sales Type vs Direct Financing

Answer 14

Sales type (2 profits) FV not equal with CV
Direct Financing (1 profit) FV = CV

Question 15

Depreciation Straight Line

Answer 15

1.  US GAAP
O/W  Asset life
N/S   Lease life
2.  IFRS
Lesser of the asset or lease life

Question 16

Capital Lease J/E

Answer 16

Dr Lease Payment Receivables
Cr Sales
Cr Unearned Interest Income

Question 17

Sales Leaseback - US GAAP

Answer 17

PV over 90% FV = defer all gain
PV 10% to 90% = defer gain up to PV, excess recognize
PV less than 10% = recognize gain
Loss = immediately

Question 18

Sales Leaseback - IFRS

Answer 18

Finance - defer all gain
Operating - GR recognize
SP > FV = defer
SP < FV = recognize 
Loss = immediately

Question 19

Sublease

Answer 19

Original lease is operating = operating
Original lease is capital = sublease is
O/W = capital
N/S = operating

Question 20

Footnote disclosure for capital leases - GAAP

Answer 20

5 year minimum lease payment