Lease

Question 1

LEASE - Less than 12 months

Answer 1

Lessee (tenant) can choose to treat the lease as an OPERATING LEASE or simply recognize lease expense each period

Question 2

If lease term is greater than 12 months

Answer 2

Lessee Recognizes assets and liabilties

Question 3

LEASE PAYMENTS =

Answer 3

1. Fixed or variable lease payments (rent, maintenance, taxes and insurance), 2. purchase option,
2. residual value guarantee,
3. non refundable deposit.

Question 4

RESIDUAL VALUE

Answer 4

Estimated value of a leased asset at the end of the lease term

Question 5

RESIDUAL VALUE GUARANTEE

Answer 5

The lessee guarantees that the leased asset’s residual value will be at least equal to the lessor’s expected value at the end of the lease term. (included as part of lease payments only to the extent that the guaranteed residual value is likely to exceed the leased asset’s expected residual value)

Question 6

Nonrefundable deposits are included in ______________________

Answer 6

lease liability

Question 7

Upfront Fees - Fees or cost incurred at the time of execution of lease , initial direct costs , to be included in __________

Answer 7

ROU Lease asset

e.g. Document fees associated with preparing the lease documents, commissions paid to agents to secure the lease and fees paid for third party guaranteed residual values.

Question 8

JE to record operating lease and Finance Lease

Answer 8

ROU Asset XXX

     Lease Liability     XXX

Question 9

Lease expense = Accreted Interest + ROU asset amortization (Accreted interest - lease expense)

Answer 9

Total lease payments/Lease term

Question 10

Accreted Interest

Answer 10

Lease Liability * Lease Interest Rate * Time Period

Question 11

ROU Asset Amortization

Answer 11

Accreted Interest - Lease Expense

Question 12

ROU Asset

Answer 12

Lease liability (PV of lease payments)+Initial direct costs (e.g. commissions, certain legal fees)+Prepaid Lease payments - Lease Incentives received (e.g. Lease signing bonus)

Question 13

LEASEHOLD IMPROVEMENT capitalized and amortized over the ________________

Answer 13

Shorter of remaining lease term or useful life

Question 14

Lease or rent expense

Answer 14

Uniformly over lease term or SL basis

Question 15

A lessee recording monthly lease expense for a ST lease will determine expense by _____________

Answer 15

recording the expense as time passes, likely recognizes the expense on a monthly basis. The lease expense for a ST lease does not contain interest and amortization of components.

Question 16

The lessee amortizes the ROU asset on a SL basis over the SHORTER of its economic life (useful life) or the LEASE TERM. Unless there is a PURCHASE OPTION involved, in that case the property is amortized over its useful life (economic life of the asset).

Answer 16

True

Question 17

The lease term is defined as the noncancelable period plus periods covered by a lessee’s option to ___________

Answer 17

Extend the lease when it is reasonably certain the lessee will exercise that option

Question 18

JE to record finance lease payments

Answer 18

Lease liability XX
Interest expense XX
Cash XX

Question 19

A lease recording monthly lease expense for a ST lease will determine expense by ________

Answer 19

Recording the expense as time passes likely recognizes the expense on a monthly basis.

Question 20

Lease - Sales type lease finance lease - it records a right of use asset and liability equal to the PV of lease payments.

Answer 20

The asset is amortized on a SL basis over the shorter of the asset’s useful life or lease term.

Question 21

Do not include maintenance and service obligations in finance lease obligation as these are expensed and are separate from lease components

Answer 21

True

Question 22

FInance lease

Answer 22

Use Straight Line method and not the effective amortization

Question 23

When the first payment in a finance lease is made at lease inception, the payment consists entirely of a lease liability reduction.

Answer 23

Lease payments thereafter includes interest expense and a lease liability reduction.

Question 24

In operating lease, rent is expensed uniformly over the lease term on a SL basis.

Answer 24

Prepaid rent is recorded separately by the lessee as an asset.

Question 25

If the lease transfers title or has purchase option likely to be exercised, ______________

Answer 25

Use, useful life of the asset.

Question 26

Monthly lease payment for a ST lease will determine expense by

Answer 26

recording the expense as time passes, likely recognizes the expense on a monthly basis. ST lease does not contain interest and amortization components.

Question 27

When accounting for an initial direct cost, the lessee will

Answer 27

Include the initial direct cost at its cost in the calculation of ROU asset because these costs occur around the time of execution of the lease. Initial direct costs are not included in the lease liability.

Question 28

The lease term is defined as the noncancelable period + ___________

Answer 28

periods covered by a lessee’s option to extend the lease when it is reasonably certain the lessee will exercise that option.

Question 29

Variable lease payments __________

Answer 29

should be included at their PV in the lease liability.