Lease

Question 1

If it is a capital lease what are the two lease types for Lessor?

Answer 1

Direct Financing Lease - Leased Asset BV = FV

Sales Type Lease - Leased Asset BV not = FV

Question 2

What does lessor earn on STL?

Answer 2

Gross Margin = FV - BV

Plus interest over lease term

Question 3

What are the two methods of accounting for DFL?

Answer 3

Gross Method and Net Method

Question 4

What is the JE for Gross Method for DFL?

Answer 4

Dr: Lease Receivable(sum of Lease payments)
Cr: Unearned Interest (contra receivable)(amt of int to be earned over the life of the asset)
Cr: Asset (cost or BV)

Note: Lease Rec - Unearned Int should equal PV of the minimum lease payment

Question 5

What is the JE for Net Method for DFL?

Answer 5

Dr: Lease Receivable (Net)
Cr: Asset

Interest income is recognized when the period lease payments are received.

Question 6

What is the JE for STL for Capital Lease?

Answer 6

Lease Receivable (Sum of the lease payments)
COGS (Asset cost or BV)
Unearned Int (int to be received over the life)
Asset (BV or cost)
Sales (PV of lease payments)