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Exam 15: Leases

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Question 21

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Listed below are several terms and phrases associated with leases. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

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Question 22

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Describe the use of depreciation for an asset leased under a capital lease. Include a discussion of the depreciation period.

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The value of the leased asset (present v...

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Question 23

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M Corp. recorded a capital lease in February using an annuity due present value table. The company's December 31 statement of cash flows using the direct method will report:

How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to leases of land and buildings?

Leasehold improvements usually are classified in a balance sheet as:

Merlin Co. leased equipment to Houdini Inc. The equipment cost the lessor $200,000. The appropriate interest rate for this lease is 15%. The annual lease payments are made at the end of each year. The lease term is three years. The residual value at the end of the lease term is expected to be $40,000. Houdini has the option to purchase the equipment at that time for $20,000. Assume this is a direct financing lease. Required: 1. For this lease: (a.) The lease payment computed by the lessor is $ _____________. (b.) The amount the lessee should capitalize is $ ____________. 2. How much interest should be recognized at the end of year 1 by the: (a.) Lessor? $ __________ (b.) Lessee? $ _____

On June 30, 2013, Blue, Inc., leased a machine from Big Leasing Corporation. The lease agreement qualifies as a capital lease and calls for Blue to make semiannual lease payments of $281,454 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2013. Blue's incremental borrowing rate is 10%, the same rate Big uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. Required: 1. Determine the present value of the lease payments at June 30, 2013, (to the nearest $000) that Blue uses to record the leased asset and lease liability. 2. What would be the pretax amounts related to the lease that Blue would report in its balance sheet at December 31, 2013? 3. What would be the pretax amounts related to the lease that Blue would report in its income statement for the year ended December 31, 2013?

On a sale-leaseback transaction, any gain on the "sale" portion of the transaction is recognized immediately.

Under both U.S. GAAP and IFRS, a lease is a capital lease (called a finance lease under IFRS) if substantially all risks and rewards of ownership are transferred. In making this determination, more judgment, and less specificity, is applied using:

The IASB and FASB are collaborating on a joint project intended to revise standards for accounting for leases. Briefly describe the tentative decisions of the two boards regarding the overall approach of the new standard.

A sales-type lease differs from a direct financing lease in one respect:

Each of the independent situations below describes a capital lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit interest rate. For convenience, here are some table values: Required: For each situation determine the amount of the annual lease payment, as calculated by the lessor.

If the lessee expects to obtain title to leased property due to a bargain purchase option or passage of title at the end of the lease term:

Neely BBQ leased equipment from Smoke Industries on January 1, 2013. Smoke Industries had manufactured the equipment at a cost of $810,000. Its cash selling price and fair value is $1,287,756. Both companies employ the lease ASU. Required: 1. Prepare the appropriate entries for Neely BBQ (Lessee) on January 1, 2013, and December 31, 2013. 2. Prepare the appropriate entries for Smoke Industries (Lessor) on January 1, 2013, and December 31, 2013. Assume that Smoke Industries determined that it does retain exposure to significant risks or benefits associated with the equipment. 3. Prepare the appropriate entries for Smoke Industries (Lessor) on January 1, 2013, and December 31, 2013. Assume that Smoke Industries determined that it does not retain exposure to significant risks or benefits associated with the equipment.

J Corp. entered into an operating lease in February. The company's December 31 statement of cash flows will report:

Here is a lease amortization schedule for Jedi Corporation. Total interest over term of lease. ?? Annual straight-line depreciation on the leased asset. ?? Required: (a) Calculate the effective interest and the decrease in balance for the first lease payment. (b) Calculate the initial lease obligation above. (c) Calculate the annual depreciation amount. (Round to the nearest dollar.) (d) Calculate the annual interest rate. (e) Calculate the missing amounts for rows for payments 10 and 11. (f) Calculate the total effective interest over the term of the lease.

From the perspective of the lessor, leases may be classified as either:

Discuss the interest rates used by the lessee and the lessor for determining the present value of a capital lease.

What is the total interest paid over the term of the lease?

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the: