M1 - Operating Leases Flashcards
When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?
Over the life of the lease
Since the lease bonus is nonrefundable, it represents income attributable to the lease term. Therefore, recognition is deferred and recognized equally over the life of the lease.
A lessor grants the lessee 12 months of free rent under 5 yr lease. Monthly rental payments begin Jan 1 Y2. Lessee made first rental payment Dec 30 Y1. What should lessor report as rental revenue in Y1?
One-fifth of the total cash to be received over the life of the lease.
Annual rental revenue equals the total rental revenue from the lease allocated over the full life of the lease. In this case, revenue equals total cash divided by five years.
Since a service was provided and the revenue is realizable through future collections, revenue must be recognized in Year 1.
Leasehold improvements should be amortized over the lesser of the remaining life of the lease or the life of the improvement. (true or false)
True
January 1 - company enters into operating lease
March 1 - company begins alterations to property
May 1 - Companys staff moves in
July 1 - Monthly rental payments begin
Recognition of rental expense for new offices should begin in which of the following months?
January
The lessee should begin the recognition of rental expenses for the new office in January as rent expense is recorded over the lease term.
True or false: The appropriate accounting treatment for a lease bonus to the lessor in an operating lease is that the bonus is originally recorded as deferred revenue and then amortized into income over the life of the lease.
True
True or False: Lessee shall record an operating lease as rental expense using the straight line basis even if payments are made on some other basis, unless another systematic and rational basis is more representative. There is no interest component for an “operating lease.”
True
The entire refundable security deposit is recorded. If the tenant moves out at the end of the lease term, the deposit is taken into revenue and matched with the cleaning costs and damage repair and/or refunded to the tenant. The deposit is NOT revenue upon receipt. True or false
True
The cleaning costs and damage repair are NOT deducted from the security deposit until the cost is incurred.
True or False: For operating leases having remaining lease terms in excess of one-year, the future minimum rental payments required as of the last BS date should be disclosed in the aggregate and for each of the next five succeeding years.
True
