Lease Flashcards
LEASE - Less than 12 months
Lessee (tenant) can choose to treat the lease as an OPERATING LEASE or simply recognize lease expense each period
If lease term is greater than 12 months
Lessee Recognizes assets and liabilties
LEASE PAYMENTS =
- Fixed or variable lease payments (rent, maintenance, taxes and insurance), 2. purchase option,
- residual value guarantee,
- non refundable deposit.
RESIDUAL VALUE
Estimated value of a leased asset at the end of the lease term
RESIDUAL VALUE GUARANTEE
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)
Nonrefundable deposits are included in ______________________
lease liability
Upfront Fees - Fees or cost incurred at the time of execution of lease , initial direct costs , to be included in __________
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.
JE to record operating lease and Finance Lease
ROU Asset XXX
Lease Liability XXX
Lease expense = Accreted Interest + ROU asset amortization (Accreted interest - lease expense)
Total lease payments/Lease term
Accreted Interest
Lease Liability * Lease Interest Rate * Time Period
ROU Asset Amortization
Accreted Interest - Lease Expense
ROU Asset
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)
LEASEHOLD IMPROVEMENT capitalized and amortized over the ________________
Shorter of remaining lease term or useful life
Lease or rent expense
Uniformly over lease term or SL basis
A lessee recording monthly lease expense for a ST lease will determine expense by _____________
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.
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).
True
The lease term is defined as the noncancelable period plus periods covered by a lessee’s option to ___________
Extend the lease when it is reasonably certain the lessee will exercise that option
JE to record finance lease payments
Lease liability XX
Interest expense XX
Cash XX
A lease recording monthly lease expense for a ST lease will determine expense by ________
Recording the expense as time passes likely recognizes the expense on a monthly basis.
Lease - Sales type lease finance lease - it records a right of use asset and liability equal to the PV of lease payments.
The asset is amortized on a SL basis over the shorter of the asset’s useful life or lease term.
Do not include maintenance and service obligations in finance lease obligation as these are expensed and are separate from lease components
True
FInance lease
Use Straight Line method and not the effective amortization
When the first payment in a finance lease is made at lease inception, the payment consists entirely of a lease liability reduction.
Lease payments thereafter includes interest expense and a lease liability reduction.
In operating lease, rent is expensed uniformly over the lease term on a SL basis.
Prepaid rent is recorded separately by the lessee as an asset.
If the lease transfers title or has purchase option likely to be exercised, ______________
Use, useful life of the asset.
Monthly lease payment for a ST lease will determine expense by
recording the expense as time passes, likely recognizes the expense on a monthly basis. ST lease does not contain interest and amortization components.
When accounting for an initial direct cost, the lessee will
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.
The lease term is defined as the noncancelable period + ___________
periods covered by a lessee’s option to extend the lease when it is reasonably certain the lessee will exercise that option.
Variable lease payments __________
should be included at their PV in the lease liability.
