F5

Question 1

Under GAAP, what are the 2 types of leases?

Answer 1

(Rental) Operating Lease or (Sale in substance) Capital Lease/Sales Type/Direct Financing Lease

Question 2

Under IFRS, what are the 2 types of leases?

Answer 2

(Rental) Operating Lease or (Sale in substance) Finance Lease

Question 3

For operating leases, how is rental income/expenses recorded?

Answer 3

using straight line method (even if not equal payments)

Question 4

For operating leases, how is a lease bonus (prepayment) recorded?

Answer 4

deferred charge and amortize SL (ex: commission paid to RE agent)

Question 5

For operating leases, how is a leasehold improvement recorded?

Answer 5

capitalize and depreciate over lesser of useful life or lease term

Question 6

For operating leases, how is the fixed asset recorded by the lessor?

Answer 6

depreciate over useful life

Question 7

For operating leases, how is a nonrefundable security deposit recorded?

Answer 7

Lessor = unearned revenue. Lessee = capitalize, prepaid rent expense

Question 8

For operating leases, how is a refundable security deposit recorded?

Answer 8

Lessor = A/P. Lessee = A/R

Question 9

What is the LESSEE criteria under GAAP for a CAPITAL lease?

Answer 9

OWNS= Ownership. Written bargain purchase option. 90% of FV < PV. 75% of asset life < lease term

Question 10

What is the LESSEE/LESSOR criteria under IFRS for a CAPITAL lease?

Answer 10

OWES FACS= Ownership. Written bargain purchase option. Economic life (majority). Substantially all FV. Fluctuations in FV accrue to lessee. Ability to continue lease. Cancelable. Specialized asset

Question 11

What is the LESSOR criteria under GAAP for a SALES/DIRECT FINANCING lease?

Answer 11

Lessor needs all the LUC = Lessee “OWNS” property. Uncertainties do not exist regarding unreimbursable costs to be incurred by lessor. Collectability is reasonably assured

Question 12

For capital leases, how is the lease recorded by the lessee?

Answer 12

Capitalize= (LCM) lesser of FV or Cost. Interest Rate = lesser of implicit rate or lessee’s rate

Question 13

For capital leases, how is the depreciation of the lease recorded by the lessee?

Answer 13

SL = Asset – SV = Base / Period of Benefit = dep exp

Question 14

What is the period of benefit for GAAP?

Answer 14

OW = asset life. NS = lease term

Question 15

What is the period of benefit for IFRS?

Answer 15

lesser of asset life or lease term

Question 16

For a sales-type/direct financing lease, how do you calculate the gross investment?

Answer 16

GROSS = lease payment + unguaranteed RV

Question 17

For a sales-type/direct financing lease, how do you calculate the principal (net investment)?

Answer 17

PRINCIPAL = GROSS * PV

Question 18

For a sales-type/direct financing lease, how do you calculate the interest (unearned int rev)?

Answer 18

INTEREST = GROSS – NET

Question 19

For a sales-type lease, how do you calculate the COGS?

Answer 19

COGS = Cost of Asset – PV unguaranteed RV

Question 20

For a direct financing lease what is the PV?

Answer 20

PV = CV = COGS

Question 21

What are the general rules for sale-leaseback

Answer 21

0% (IGNORE) 10% (RULES) 90% (LOAN) 100%

Question 22

For subleases, if the original lease is an operating lease, what is the sublease?

Answer 22

operating lease

Question 23

For subleases, if the original lease is an capital lease, what is the sublease?

Answer 23

OW = capital, NS = operating

Question 24

What are other terms for stated rate?

Answer 24

coupon or nominal rate

Question 25

What are other terms for market rate?

Answer 25

effective rate

Question 26

Are debentures (bonds) secured or unsecured?

Answer 26

unsecured

Question 27

Are collateral trust bonds secured or unsecured?

Answer 27

unsecured

Question 28

Are mortgage bonds secured or unsecured?

Answer 28

secured by real property

Question 29

What is a convertible bond?

Answer 29

can convert to C/S

Question 30

What is a term bond?

Answer 30

single fixed maturity date (all principle due at end of term)

Question 31

What is a serial bond?

Answer 31

Pre-numbered bond. Can redeem portion by number

Question 32

Bonds are usually in denominations of?

Answer 32

$1,000.00

Question 33

Bond price is quoted at what

Answer 33

100s, % of par value

Question 34

How do you calculate the check amount (bond interest)

Answer 34

coupon x face

Question 35

How often is bond interest paid?

Answer 35

US = semiannually, Rest = annually

Question 36

How do you account for BIC?

Answer 36

defer and amort SL

Question 37

What is the SL Method of Bond Premium/Discount Amort?

Answer 37

Amort = Premium or Discount / # periods outstanding. Int Exp = Check amount – premium amort + discount amort

Question 38

What is the Effective Interest Method of Bond Premium/Discount Amort?

Answer 38

Amort = Int Exp – Int Paid. Int Exp = NCV x effective %. Int Paid = Face x coupon %

Question 39

How do you account for bonds issued between interest dates?

Answer 39

Cash = accrued interest + price of bond