Lease Accounting Flashcards
Are executory costs part of the PV of lease payment calculation?
No, executory costs are not used to compute the PV of lease payments
How is the cash payment for a finance lease recorded?
The cash payment is broken out between the interest component and the amortization (or principal) component. The amortization component decrease the lease liability (see the below example)
Interst expense $2,000
Lease liability $8,000
Cash $10,000
Amortization expense is recorded as a separate entry usually at SL
How is the cash payment for an operating lease recorded?
The cash payment contains an iterest component and amortization component that is combined for the lease expense (see the below example)
Lease expense (interest + amortization) $10,000
Cash $10,000
Amortization expense is recorded as a separate entry for the amortization component of the lease expense.
Lease liability $10,000
Accumulated amortization $10,000
What amounts of subsequent years’ lease payments must be disclosed in the financial statements?
Aggregate amount of lease payments for the next 5 years as well as the total amounts to be paid thereafter (2 parts: first 5 and remaining years thereafter)
What costs must be covered by a lessor in a lease agreement?
The lessor wants to recover the investment (amount paid) less any guaranteed residual value
What is a lessors net investment in a lease agreement?
Cost paid for the asset to be leased
What is a lessee’s lease liability at commencement?
Present value of the leases payments plus any guaranteed residual value
For Operating leases, what is the ROU asset and lease liability?
PV of lease payments equals the ROU and liability
For operating leases, what decreases the ROU and liability?
The principal amortization component of the lease expense decreases the ROU and liability
