Sales Type and Direct Financing Leases Flashcards
Direct financing leases are a type of capital lease. TF
True
If the leased asset BV = FV the lease is a ____.
Direct financing lease
In a DFL the lessor earns only _______ on the lease.
Interest
If the leased asset BV does not = FV the lease is a _____.
Sales type lease
On sales type leases, lessors immediately earn the gross margin on the leased asset as well as interest over the lease term. TF
True
Inception is identical for DFLs and STLs. TF
False
Gross method - lessor accounting for DFL’s at inception would include a db. to Lease Receivable and a cr. to Asset. TF
False, this is the journal entry for the net method
Gross method - lessor accounting for DFL’s at inception would include a dr. to Lease Receivable, a cr. to Unearned Interest, and a cr. to Asset. TF
True
At lease inception the STL entry would appear as…
dr. Lease Receivable dr. COGS cr. Unearned Interest cr. Asset cr. Sales
Both DFLs and STLs base the lease payment on _____ value.
Fair
For these type of problems its best to set up a _____ ______ table.
Lease amortization table.
Net Lease Recievable Balance = PV of the present value of the minimum lease payments - the PV of the residual value at the end of the lease term. TF
False, + the PV of the residual value
_____ ______ = the total lease payments - the FV of the property at inception
Total interest Revenue
The annual journal entry to record a capital lease is…
dr. Interest Expense (PV of lease payments x int rate)
dr. Lease Liability (Plug)
cr. Cash (given in lease agreement)
A lease amoritzation table would have what columns?
Date, Int Expense, Lease Payment, Principal, CV of lease
In a STL, interest recieveable should be recognized (in full/ SL method/ EI method) by the lessor?
Effective Interest Method
What is an unguaranteed residual in an STL?
The portion that is not sold
The PV of the unguaranteed residual is subtracted from sales and COGS. TF
True, subtracted from both sides at the same amount
Land leases are subject to the 4 capital lease critierion when it comes to capitalization. TF
False, only the beginning two. Land does not deprieciate.
Executory costs are not included in minimum lease payments. TF
True
Initial direct costs are _____ and ______ in an operating lease.
Capitalized, amortized
Initial direct costs are matched immediately as expense against the sale in an STL. TF
True
Initial direct costs are matched immediately as an expense agains the sale in a DFL. TF
False, in a DFL no sale has occured. IDC is treated as a reduction in the interest recieveable.
A contingent rental refers to changes in lease payments that result form a future event. They are ________ as expese or revenue as they occur.
Recognized
STL income to be recognized = Normal selling price - _____ ______.
Asset cost. STL’s are treated like sales. The profit recognized is the normal profit margin.
