Concepts CH 13

Question 1

Capital Lease

Answer 1

Any of the Following:
Provides for transfer of ownership
Lease contains a BPO
Lease Term is > 75% of Econ Useful Life
PV of min lease payments is at least 90% of FV of property at inception

Question 2

Components of min lease payments

Answer 2

Minimum Rental payments (less executory costs)
BPO (Purch at price < FV)
Guaranteed Residual Value
Non-Renewal Penatly

Question 3

Capital Lease Liability

Answer 3

PV of min lease payment
Discount Rate (lessor of Lessor's implict rate or lessee's incremental rate)

Question 4

Liability with BPO (2)

Answer 4

Min Rental payments

BPO

Question 5

Liability w/o BPO (3)

Answer 5

Min Rental Payments
Residual value guaranteed
Non Renewal Penalty

Question 6

Capital Lease Sub Measure

Answer 6

Each Payment 2 Components (Principal & Interest)
Effective interest rate required
Portion of min lease payment in excess of interest reduces liability

Question 7

Depreciation Leased asset

Answer 7

Same as owned/purch

• Criterion 1 (trans own) - Econ Life
• Criterion 2 (BPO) - Econ Life
• Criterion 3 (75%) - Lease term
• Criterion 4 (90%) - Lease term

Question 8

Disclosure

Answer 8

Future min lease payments must be disclosed in aggregate 5 years

Question 9

Lessor Capitalization

Answer 9

1 of 4 Criterion and

1) Collectibility of remaining payment predictible and
2) No material uncertainty exist regarding unreimbursible cost to be incurred by lessor

Question 10

Direct Financing Lease

Answer 10

No manufacturing profit

Question 11

Sales-Type Lease

Answer 11

Lessor recognizes manufacture/dealer profit

- FV differs from carrying amount/cost

Question 12

Sale-Leaseback

Answer 12

If lease qualifies as capital, gain/loss generally deferred and amortized by seller/lessee
1) Gain Deferred may recognized as asset valuation
2) Loss occurs when carry amount > FV (recognize immediately)
3) IF carry amount > SP but FV > carry amount loss deferred and amortized as pp rent
If lease op lease - deferred into gross rent payments

Question 13

Sale-Leaseback Exception - Retain < 10%

Answer 13

Based on ratio of PV lease payments to FV of lease prop

No gain/loss defer recognize immediately in separate transaction

Question 14

Sale-Leaseback Exception - Between 10% and 90% of FV of prop - Op Lease

Answer 14

Gain Recognized as difference between Total Gain - PV of min lease payments

Question 15

Sale-Leaseback Exception - Between 10% and 90% of FV of prop - Capital Lease

Answer 15

Gain recognized up to the recorded amount of leased asset (PV of min lease payments or FV) must be deferred.
Total gain recognized immediately Total gain - Recorded amount of leased asset

Question 16

Contingencies - Probable

Answer 16

Must be accrued when probable and reasonable estimate

Question 17

Contingencies - Reasonably Possible

Answer 17

Disclosed w/ a range

Question 18

Contingencies - Remote

Answer 18

Not disclosed

Question 19

Contingencies - Gain

Answer 19

Only recognized when realizable but should be dislcosed

Question 20

Sales-Leaseback qualified deferred gain reported as

Answer 20

Asset Valuation allownance

Question 21

The excess fair value of leased property at inception of lease over the carrying amount should be classified by lessor as

Answer 21

Manufacturer’s/Dealers’ profit from from sales-type lease

Question 22

Finding Annual Payment DF Lease

Answer 22

FV of Asset/PV factor

Question 23

Interest on DF lease

Answer 23

Sum of Annual Payment - FV of Assets

Question 24

Sales-type lease

Answer 24

Unearned income is amortized to income over the lease term using the effective interest rate method, which produces a constant periodic rate of return on net investment

Question 25

At inception of a capital lease

Answer 25

A lessee should record a fixed asset and a lease obligation equal the PV of minimum lease payments.