Leases

Question 1

what are the elements of PV of miimum lease payments ?

Answer 1

R Regular payments
E Exercise option
Residual value
Purchase price
Only variable payments that depend on CPI index
Termination penalties

Question 2

what discount interest rate to use when calculating PV for lease ?

Answer 2

1 - Implicit

2-Incremental borrowing rate

Question 3

how initial direct cost accounted for in a lease contract for a lessee ?

Answer 3

to be capitalized

Question 4

how do a lessor account for sales type lease ?

Answer 4

the lessor will recognize receivable + guaranteed residual value and remove the asset from the books and recognize any gain or loss immediately

Question 5

How to account for operating capital lease for lessee ?

Answer 5

One cost = Regular Payment

Amortize ROU Asset by the difference between interest expense & Payment

Question 6

How o account for finance capital lease for the lessee ?

Answer 6

Two Costs
1-Interest expenses = liability at the beginning of the period X interest rate

2-Depreciation expense = ROU Asset / Lease term period