Lease & Construction

Question 1

Sales Lease Back - when criteria are met

Answer 1

you sell to someone, and lease the same thing from them

If it is an operating lease ( OWENS not met) then its a sale

Dr. Cash 
Dr. Accumulated Depriciation 
          Cr. Equipment ( property) 
           Cr. Financial liability ( Cash you got - FV ) 
           Cr. Gain ( FV - NBV)

Question 2

Sales lease back - criteria not met

Answer 2

failed sales

Dr. Cash
Cr. Financial Liability

later
Dr. Interest expense
Cr. Financial liability

Dr. Depriciation expense
Cr. Accumulated depreciation

Question 3

Operating lease

Lessee side

Answer 3

Initial entry

Dr. ROU Asset
Cr. Lease liability ( PV of payments)

Later: 1 expense in IS

Dr. Lease expense ( annual payment = interest expense + ROU amortization)
Dr. lease liability ( amortization amount)
Cr. Cash
Cr. Accu. ROU amortization

Question 4

Financing lease = OWENS

Lessee side

Answer 4

Initial
Dr. ROU asset
Cr. Lease liability

Later: 2 expense in IS

Dr. Interst expense
Dr. Lease Laibility
Cr. Cash

for depreciation
Dr. Amortization
Cr. Accu. ROU amortization
(Use life of the asset if OW , over lease term if ENS)

Total expense = interest expense + amortization

Question 5

Sales -types lease = OWENS

Lessor

Answer 5

Dr. Intial cost
Dr. Residual Value ( PV)
Dr. Lease receivables
Cr. Cash ( same as initial cost )
Cr. Fixed Asset ( CV )
Cr. gain ( lease receivable+residual value - CV)

Question 6

Direct -financing lease no OWNES BUT both PC

Lessor

Answer 6

Dr. Residual Value
Dr. lease receivables ( pv of lease + initial cost)
Cr. Fixed Asset ( FV )
Cr. Cash ( initial cost value)

no Gain recognized at first and the initial cost amortized over the period of lease

Dr. Cash
Cr. Interset income ( residual + lease receivales * %)
Cr. lease receivables

Question 7

Operating lease - lessor

Answer 7

Dr. Cash
Cr. Rental income

Dr. Depreciation
Cr. Accumulated depreciation

Initial cost deferred and amortized over the lease term

Question 8

Percentage Completion

Gross Profit current year

Answer 8

Step 1: get total profit i.e. total contract price - total estimated cost of the contract

Step 2: completion % = cost to the date / estimated total cost

Step 3: cumulative GP = Step 1 * Step 2

Gross profit for the year = cumulative GP - prior year GP

If loss 100% in the current period

Question 9

Percentage Completion JE

Answer 9

Dr. Constrcution in progress
Cr. materials, cash
(to record the cost incurred)

Dr. AR
Cr. Progress billings
( to record the billings)

Dr. Cash
Cr. AR
( to record the payments received)

Dr. Cost of long term construction contract
Dr. Construction in progress
Cr. Revenue from LT construction contracts

..when construction in completed

Dr. Progess billings
Cr. Construction in progress
(to close construction account)

Question 10

Completion method
JE

Losses recognized in full in the period incurred

Answer 10

Dr. Construction in progress
Cr. materials, cash
(to record the cost incurred)

Dr. AR
Cr. Progress billings
( to record the billings)

Dr. Cash
Cr. AR
( to record the payments received)

when completed

Dr. Progress billings
Cr. Revenue
( to close billings to revenue)

Dr. Cost of LT construction contract
Cr. Construction in progress
(to close construction in progress expenses)