Operating Leases Flashcards
Leasing allows a firm to use an asset without _____ it.
Owning
Two types of leases are accounted for. What are they?
Operating and capital
Leases must be non-cancellable to qualify as capital leases. TF
True
Operating leases are accounted for as rental agreements. Two accounts normally to be used are:
Rental revenue, rent expense
Capital leases are accounted for as if ownership is transferred form the lessor to the lessee. TF
True
Annual rent expense or rent revenue =
Total rental fees including bonuses, excluding damage deposits / the lease term in years (
Leasehold improvements are capitalized and amortized. TF (lessor)
True
Rent expense on operating leases are recognized on a SL basis, regardless of when payments are made. TF
True
The 4 criteria for determining if a lease is a capital lease are:
- Lease title is transferred
- Lease contains a bargain purchase option
- Lease term is at least 75% of remaining economic life of asset leased at inception
- PV of min lease pmts at the inception of the lease is at lease 90% of the market value of the leased asset.
If any ONE of these criteria are met, the lease is classified as an CAPITAL lease
(TTBPO 75 or 90)
Leasehold improvements are not capitalized to operating lease assets. TF
True, we don’t own the asset (lessee)
Leasehold improvements are debited to leasehold improvements and amortized over the remaining lease term regarding operating leases. TF
True
Rental revenue for the period =
Total rental fees / lease term used
All of the criteria for determining a capital lease need to be met in order for a lease to be capitalized. TF
False, only one of the criteria need to be met
Executory costs (taxes, insurance, and maintenance) are paid by the lessee in an operating lease.
False, lessor
Leasehold improvements with useful lives exceeding one year are capitalized and amortized to expense (lessee). TF
True
