ACCT Chapter 20

Question 1

For operating and finance leases in either case you need to…

Answer 1

capitalize all leased assets and liabilities

Question 2

To be considered a finance lease it must be non cancelable (you can’t just walk away from it; for example a phone bill you can walk away) AND meet at lease one of these 5 steps:

Answer 2

1. Transfer of Ownership Test
   “Will I own it at the end?”
2. Purchase Option Test
   “Can I buy it at a bargain price?”
3. Lease Term Test
   “Am I leasing it for 75% or more of its useful life?”
   ex. Asset lasts 10 years, use it for 8 (80%) this is good
4. Present Value test
   “Does what I’m paying equal substantially all of the assets value?” 90% or more?
5. Alternative Use Test
   “Is this asset so special that my lessor cant use it for anything else?”

Question 3

If the lessee knows about the ___ rate you would use it

Answer 3

Implicit rate (could also be stated as rate of return)

Question 4

Lessee accounting for finance leases steps

Answer 4

1) classify if finance or operating

2) calculate amount of capitalized as ROU and lease liability
by taking the payment and multiplying by PV factor annuity due/ordinary annuity

3) amortization schedule now with your lease liability and payment..

Question 5

lessee for finance how to record finance lease

Answer 5

debit ROU
credit lease liability

Question 6

lessee for finance how to record lease payments

Answer 6

debit lease liability
credit cash

Question 7

lessee for finance how to record accrued interest

Answer 7

debit interest expense
credit lease liability

Question 8

lessee for finance how to record amortization of rou

Answer 8

debit amortization expense
credit rou

Question 9

equation to calculate lease receivable

Answer 9

present value of lease payments + present value of guaranteed and unguaranteed residual values

Question 10

Lessor Accounting for Sales-Type Leases steps

Answer 10

1) classify if finance(sales type) or operating
usually if fair value doesnt equal to cost its sales type

2) calculate amount to be recovered:
Take fair value of equipment and subtract by the pv of residual value (guaranteed/unguaranteed times the pv of 1 factor)

3) Solve for payments using amount to be recovered
amount to be recovered divided by annuity due factor

4) calculate lease recievable ( will equal back to fair value)

5) make amortization schedule with lease receivable, etc..

Question 11

Lessor accounting for sales type entry for commencement og date

Answer 11

debit lease receivable
debit cogs
credit sales revenue
credit inventory

Question 12

Lessor accounting for sales type entry for first payment

Answer 12

debit cash
credit lease recievable

Question 13

Lessor accounting for sales type entry for interest revenue

Answer 13

debit lease recievable
credit interest revenue