FAR 6.1 & 6.2 - Leases

Question 1

The lessee accounts for a lease as one of what two options?

Answer 1

Operating or finance lease

Question 2

The lessor accounts for the lease as one of what three options?

Answer 2

Operating, sales-type, or direct financing lease

Question 3

If the lease meets any one of the OWNES criteria, how does the lessee and lessor classify the lease?

Answer 3

Lessee: finance lease
Lessor: sales-type lease

Question 4

If the lease meets none of the OWNES criteria, and both of the PC criteria, how does the lessee and lessor classify the lease?

Answer 4

Lessee: operating lease
Lessor: direct financing lease

Question 5

If the lease meets none of the OWNES criteria, and one or neither of the PC criteria, how does the lessee and lessor classify the lease?

Answer 5

Lessee: operating lease
Lessor: operating lease

Question 6

For the N criteria of the OWNES criteria, whaat percentage is used to determine that the FV of the underlying asset would be considered substantial?

Answer 6

90%

Question 7

For the E criteria of the OWNES criteria, what percentage is used to determine “major part” of economic life ?

Answer 7

75%

Question 8

Short term leases are classified as:

Answer 8

Operating leases

Question 9

When calculating the present value of the minimum lease payments, the lessor should use what rate first, then what rate second if the first rate is not readily determinable?

Answer 9

1st: rata implicit in the lease
2nd: Incremental borrowing rate

Question 10

Operating leases have how many expenses on the income statement?
Finance leases have how many expenses on the income statement?

Answer 10

Operating : 1
Finance: 2

Question 11

Under a finance lease, the lessee would amortize the ROU using what if ownership or written option criteria are met?

Answer 11

Assets useful life

Question 12

Under a finance lease, the lessee would amortize the ROU using what if the net present value, economic life, or specialized asset criteria are met?

Answer 12

Short of the lease term or the useful life of the asset

Question 13

What is the one expense recorded for an operating lease?
What are the two expenses recorded for a finance lease?

Answer 13

Operating: lease expense
Finance: lease expense and amortization of the ROU asset