Leases - SImulations Flashcards
Lessee Short Term Lease
Dr. Lease Expense
Cr. Cash or A/P
Lessor Short Term Lease
Dr. Cash or A/R
Cr. Lease Revenue
How Lessor calculates what to charge to lessee for operating lease
- If there is unguaranteed residual value multiply by by present value and subtract from FV of item to be leased
- Divide 1 by present value of factor of annuity
How lessee calculates and records lease on books
Dr. Right-of-use Asset
Cr. Lease liability
- Multiply minimum lease payment by present value factor of annuity
Lessee amortization table for leases
Date - Lease Payment - Interest - Reduction - Lease Liability
Lessee Journal entries for operating lease - wiley
Recording Asset
Dr. ROU Asset
Cr. Lease Liability
For Payment
Dr. Lease Liability
Cr. Cash
For Interest
Dr. Lease expense - Payment amount
Cr. Right of use asset - Reduction
Cr. Lease liability - interest
Lessor Journal entries for operating lease with payment at the beginning of the year
For payment Dr. Cash Cr. Unearned Revenue Dr. Unearned Revenue Cr. Lease Revenue
Depreciation
Dr. Depreciation expense
Cr. Accumulated depreciation
Finance Lease Criteria
- Title is transferred to lessee
- Lessee has option to buy asset at a bargain
- Lease term is 75% or more of useful life of asset
- Present value of minimum lease payments 90% or more of FV of asset
- Asset has no alternative use
Residual Value - guaranteed
If there is guaranteed residual value that means the lessee is responsible for the condition of asset at the end of the lease. This usually means its an operating lease the lessee is responsible for the guaranteed amount
Residual value - unguaranteed
If there is unguaranteed residual value then lessee is not responsible for condition of asset. This is like salvage value for the lessor.
How to calculate what lessee has to pay for finance lease
- Subtract present value of residual value from FV of asset
2. Divide 1 by present value factor of annuity
How lessee calculates present value of minimum lease payments
- Multiply lease payment by present value factor
- Find the difference between guaranteed residual value and expected residual value multiply by present value factor
- Add 1 & 2 to find what you capitalize as lease liability
Finance lease journal entries for lessee
Recording asset
Dr. Right of use asset
Cr. Lease liability
Interest
Dr. Interest Expense - what asset was recorded at X rate
Dr. Lease liability - reduction
Cr. Cash - payment amount
Depreciation
Dr. Amortization expense
Cr. Right of use asset
Lessor initial journal entries for sales type lease and calculation
- Divide FV of asset by PV factor for annuity to find payments
- Multiply payments by number or years in lease
Journal entries at inception of lease
Dr. Lease receivable - total payments
Cr, Unearned Interest - Difference between payments & FV
Cr. Sales revenue - FV of asset
Dr. COGS - BV of asset
Cr. Equipment
Dr. Cash - single payment amount
Cr. Lease receivable
Sales type lease journal entries and table for lessor
Dr. Unearned Interest
Cr. Interest Revenue
Lease payment - interest - Reduction - Net lease Receivable(FV)
Note about how to depreciate finance leases
- If it meats the transfer of ownership criteria or purchase option criteria then you depreciate over the life of the asset but if there isn’t one then you depreciate over the life of the lease
What is a direct financing lease
When the lease doesn’t meet any of the 5 criteria of a sales type lease(financing lease) but residual value is guaranteed by a 3rd party
Journal entry for lessor at the inception of a direct financing lease
Dr. Lease receivable - FV of asset
Cr. Deferred gross profit - difference between FV & BV
Cr. Inventory - cost of asset
Journal entry for recognition of lease revenue for a direct financing lease
Dr. Cash - lease payments
Dr. Deferred gross profit - difference between interest rate on FV & BV
Cr. Lease revenue - interest rate based on effective rate on BV
Cr. Lease receivable - reduction based on implicit rate FV
Direct financing lease - which rate for which value
- FV gets the implicit rate
2. BV gets the effective rate
When can you recognize a gain for a sale-leaseback
If its operating then you recognize a gain because lessor keeps the asset but with a finance lease its with the lessee
Lessee Journal entries for operating lease - Becker
At Inception
Dr. Right of use asset
Cr. Lease liability
Payment Dr. Lease expense - payment amount Cr. Cash Dr. Lease liability - reduction Cr. ROU asset depreciation
Lessor Journal entries for operating lease - Becker
At Inception
Dr. Lease Receivable
Cr. Unearned lease rental income
Payment Dr. Cash Cr. Lease receivable Dr. Unearned lease rental income Cr. Lease Income
Depreciation
Dr. Depreciation expense
Cr. Accumulated depreciation
How to calculate finance liability for sales leaseback
Difference between FV and CV
Dr. Cash Dr. A/D Dr. Loss" Cr. Equipment Cr. Finance liability* Cr. Gain"
