Leases Flashcards
True or False.
IN a “Sale-Leaseback” transaction, the gain will be recognized on the Income Statement (I/S)
FALSE.
IN the sale-leaseback transaction, the gain will NOT be recognized on the income statement BUT rather as a “deferred credit” in the Liability section of the Balance Sheet (B/S)
True or False.
A nonrefundable lease bonus paid by a lessee is treated as part of the minimum lease payments.
TRUE.
A nonrefundable lease bonus paid by a lessee is treated as part of the minimum lease payments
i.e. IT is recognized over the term of the lease
Does the Lessor recognize a gain or loss when there is a direct financing lease?
NO.
WHEN there is a Direct Financing Lease, the lessor will NOT recognize any gain or loss on the sale of the leased asset and will ONLY recognize interest income over the term of the lease
WHAT are some required disclosures WHEN a Lessee enters into an operating lease?
(1) the minimum lease payments for each of the five years subsequent to the balance sheet date
(2) the sum of the minimum lease payments due later than five years from the balance sheet
(3) the full aggregate obligation amount, which is the sum of the previous two items
WHAT are (2) Critical considerations when a LEASE involves land ONLY?
(1) Whether it is expected that the lessee will ultimately own the property (i.e. Title Transfer); and
(2) Whether the lease contains a Bargain Purchase Option
NOTE: Land Only leases are considered a capital lease if these criteria are met
AT inception of a capital lease, the guaranteed residual value should ………?
Be included as part of the minimum lease payments at present value
i.e. IT is included in calculating the capitalized amount of the asset and obligation under the lease
WHAT are the (4) Criteria for a lease to be considered a Capital Lease?
(1) The lease transfers ownership to the lessee at end of lease term
(2) Lease contains a Bargain Purchase Option
(3) The “noncancellable” lease term is equal to 75% or more of the estimated economic life of the property
(4) Present Value of the Minimum Lease Payments is equal to 90% or more of the Fair Market Value (FMV) of property at inception
True or False.
The LESSOR uses the Lower of the Incremental or Implicit rate of the Lease
FALSE.
The LESSEE uses the Lower of the Incremental or Implicit rate of the Lease if the Lessee knows what the implicit rate is
Note: The Lessor always uses the implicit rate in the Lease
WHAT are the components to calculate the Lease Receivable for a direct-financing lease?
THE Minimum Lease Payments Plus the Residual Value
True or False.
Leasehold improvements are capitalized regardless of whether the lease is a capital lease or an operating lease.
TRUE.
It does NOT Matter whether the lease is an Operating or Capital Lease, the Leasehold improvements are capitalized regardless
WHAT are the (2) allowable Lease types under IFRS?
(1) Finance Lease
(2) Operating Lease
True or False.
Leasehold Improvement costs for leased property are expensed as incurred for a Lessee
False.
Leasehold Improvement costs for leased property are capitalized and depreciated (amortize) over the SHORTER of its useful life or the lease term for the Lessee
WHEN a lease involves Land and Building, the Lessee will account for the land separately if:
(1) Title transfers at the end of the lease term;
(2) The lease contains a Bargain Purchase Option
HOW does a Lessee account for a sales-type lease?
AS a Capital Lease
NOTE: If this capital lease has no title transfer or bargain purchase option, the lessee must depreciate the asset over the SHORTER of the economic useful life or lease term.
WHAT happens when a note receivable is sold with recourse to another entity?
IT is treated as if the entity borrowed funds from the other entity holding the receivables as collateral.
i.e. THE proceeds are recognized as a liability, not as an increase to notes receivable discounted
RESULT: The note receivable discounted account should be INCREASED by the face amount of the note (decreasing notes receivable and increasing notes receivable discounted)
