Lease Quiz Flashcards
Direct financing lease
Interest revenue is the only time reported on the income statement over the lease term.
Sales type lease
Sales revenue (the present value of minimum lease payments) less the carrying amount of the leader asset is reported on the lessor’s income statement at the inception of the lease
Operating lease - lessee
Interest revenue is the only item reported on the income statement over the lease term
Rental payments are recognized on a straight line basis even though the lease calls for payments that increase over the term of the lease
Operating lease -lessor
Initial direct cost should be treated as an asset and amortized over the life of the lease in a straight line basis
Unearned interest revenue
The difference between the fair value of the asset leases and the total payments to be received over the lease term
Residual value
Included in the lessor’s dross investment whether guaranteed or unguaranteed
Capital lease
Depreciation expense related to the leased asset is reported on the lessee’s income statement over the lease term
Implicit rate
Produces a desires rate of rerun which causes the aggregate present value of the minimum lease payments to be equal to the fair value of the lease property
Interest method
Produces a constant periodic rate of return on the net investment
Present value of the minimum lease payments
Should be recorded as both an asset and a liability by the lesser when the lease contains a bargain purchase option
Bargain purchase option
Lessee’s right to purchase leased property for an amount substantially lower then the expected FV at exercise date
Sales lease back
The substance is this transaction is that is consists of two separate and distinct transactions
Annuity due
A lease agreement which requires the annual payment to be made at the beginning of each period.
Initial direct costs
Costs, such as appraisal fees incurred by the lessor in setting up the lease agreement
Current lease obligation
The principal portion of the lease liability which must be paid within the next operating cycle
Lessee -owns
O- owns transfer at end of lease
W- written option for bargain purchase
N- 90% of lease property PV/FV greater than 90%
S- 75% lease term/economic life of asset greater than 75%
Lessor -LUC
L- lease owns the leases property
U- uncertainties do not exist regarding any unreimburseable cost to be incurred by lessor
C- collectibility if he lease payments is reasonably predictable
Operating lease
Lessee
Dr rent expense
Cr cash
Lessor
Dr cash
Cr rental income
Sales type capital lease
1-1-y1
Dr lease receivable
Cr sale
To record the sale of (lease of an asset)
1-1y1
Dr cash
Cr lease receivable
To record the collection of the first installment of the lease from the lessee
12-31-y1
Dr interest recieve able
Cr interest income (lease)
To record the earnings is interest in the outstanding principal amount of which another payment is due the first of next year
Dr cash
Cr lease receivable
Cr interest receivable
Record collection of second installment payment from lease
Free or uneven lease payments should be
Recognized as revenue on a straight line basis and prorated over the life of the lease
Initial direct cost of a lease
Should be capitalized and amortized straight line over life of the lease
A refundable Security deposit in the balance sheet of the lessor and lessee
Balance sheet of lessor - liability
Balance sheet of lessee - receivable
Leasehold improvements should be amortized over
The shorter of the remaining lease term or the useful life of the asset
Minimum lease payments includes any penalty for failure to renew
True
