Deck 4 Flashcards
Guaranteed Residual value is:
An additional lease payment and should be included in the calculation of the present value of the minimum lease payments.
Under GAAP, one criteria for capital lease is that the term must equal a minimum percentage of the leased property’s estimated useful life at the inception of the lease of:
75%.
When a lease is capitalized because of transfer of title or bargain purchase, depreciation is:
Based on the life of the asset, not the lease.
Lease Improvements should be amortized over:
The lessor of the remaining life of the lease or the life of the lease improvements.
Leaseback Gains are deferred only when:
The lease is a capital lease. To determine if the lease is a capital lease, divide the lease term by the useful life, if greater than 75% then it is a capital lease.
Leaseback Gains are recognized only when:
The lease is not a capital lease. Less than 10% of retention of property.
Operating lease payments to a lessor that should be deferred are:
Security deposits, prepaid rent, and the unamortized portion of non-refundable payments to the lessor for leasehold improvements.
In a sales-type lease, cost of goods sold is:
Equal to the historical cost of the asset sold less the present value of the non-guaranteed residual value discounted over the life of the lease. By definition, COGS will be less than the historical cost of the asset sold.
In sales-leaseback transactions, GAAP requires that a loss be:
recognized immediately when the fair value at the time if the sale-leasebacks less than the book value (undepreciated cost).
With a capital lease, the lessee should amortize the leased property over:
The economic life of the asset when there is a bargain purchase option or when the lessee takes ownership of the asset at the end of the lease term.
With a capital lease, the lessee should amortize the leased property over:
The term of the lease when the 75% or 90% criteria are met.
To determine the market price of a bond:
The present value of the principal is added to the present value of all interest payments, using the market interest rate.
The reported valuation of the bond payable is:
The face value less any amortized bond discount.
Under the book value method of exchanging convertible bonds for stock:
the book value of bonds is reallocated to the par value and the additional paid in capital accounts of common stock. Therefore, stockholder’s equity is increased.
No Gain or Loss is recognized under the book value method.
Bond sinking funds are accounted for:
in their own account including investments plus interest revenue and less expenses.
