Leases Flashcards
Operating leases for lessees: how do you treat leasehold improvements?
Capitalize them and depreciate over the LESSER of: lease Life or Asset’s improvement life
Us GAAP: a lessor treats what 2 leases as a sale?
Sales type or Direct financing lease
Lessee operating lease: How to account to rent kicker?
Expense
What is. Rent kicker?
Premium rent payment
Lessee operating: how to report a refundable security deposit
As an asset until refunded
Lessor operating: how to account for non refundable security deposits?
Deferred by lessor (unearned revenue) & capitalizes by lessee (prepaid expense) until the lessor considers the deposit earned
Lessor operating: how to account for a refundable security deposits?
Treat as a receivable by the lessee and as a liability by the lessor until the deposit is refunded to the lessee
What is a sales type lease and how many profits does it have?
The FV of the leased property differs from the cost or carrying amount to the lessor. 2 profits: 1. Gain on sale 2. Interest income
What is a direct financing lease and how many profits does it have
The FV of the leased property is the same as the cost or carrying amount. 1 profit: Interest income
Lessee capital/finance lease accounting: what amount does the lessee capitalize?
The LESSER of: 1. The fair value of the asset at the inception of the lease 2. Cost = Present value of minimum lease payments
Lessee capital/finance lease accounting: what costs are included when capitalizing the lease?
- Required payments 2. PV of the Bargain purchase option 3. PV of Guaranteed residual value
Lessee capital/finance lease accounting: what amounts do you exclude when capitalizing the cost?
- Executory costs (insurance, maintenance, tax) 2. Optional buyout
Lessee capital/finance lease accounting: when calculating the PV of minimum payments, the lessee uses what interest rate?
The LESSOR OF: 1. Implicit rate 2. Borrowing rate
Lessee capital/finance lease accounting: how do you discount a periodic payment?
If at beginning of period: use PV of annuity due
If at end of period: use PV of annuity
Lessee capital/finance lease accounting: how to discount a bargain purchase option or guaranteed residual?
Use the PV of $1
