F6 - M1 - Leases: Part 1

Question 1

A _______ is a contractual agreement between a lessor, who conveys the right to use real or personal property (an asset), and a lessee, who agrees to pay consideration for this right over a specified time.

Answer 1

lease

Question 2

A lease is a contractual agreement between a ______, who conveys the right to use real or personal property (an asset), and a ________, who agrees to pay consideration for this right over a specified time.

Answer 2

lessor; lessee

Question 3

What is the criteria for classifying a lease? OWNES

Answer 3

Ownership Transfer, Written Purchase Option, Ninety Percent (Minimum Lease payments are > than 90 % of fair value of lease property) , Economic Life < then 75% of term lease , Specialized Asset that does not have a use for lessor when the lease term ends

Question 4

IF OWNES exist, Leasee will treat the lease as

Answer 4

Finance Lease

Question 5

What are the lease types for a Leasee

Answer 5

Finance or Operating Lease

Question 6

What are the lease types for a Lessor

Answer 6

Finance Lease (Sales-Type Lease or Direct Finance Lease) or Operating Lease

Question 7

What are the two other criterias you have to determine when the lease doesn’t qualify for OWNES for a lessor (2)

Answer 7

1) Present value of the sum of the lease payments and any third-party guaranteed residual value is equal to or substantially exceeds the underlying asset’s fair value. and 2) Collection of the lease payments and any amounts necessary to satisfy residual value guarantees is probable.

Question 8

For lease, if None or one of the PC criteria is not met, then it should be treated as a _________ lease

Answer 8

Operating Lease

Question 9

When calculating leases, parties must determine (3)

Answer 9

(1) the lease term, (2) lease payments, and the (3) appropriate discount rate.

Question 10

A _____ occurs when one party (the seller) that has control of an asset transfers it to another party (the buyer), with a subsequent lease of the same asset where the seller becomes the lessee and the buyer becomes the lessor.

Answer 10

sale-leaseback

Question 11

To qualify as a _____, revenue recognition requirements must be met—in particular, when a contract exists and ______ has transferred from the seller to the buyer. If the asset transfer does not meet these requirements, this will be treated as a ______________.

Answer 11

sale, control; financing transaction.

Question 12

If treated as a sale, the lessor must record a _______ for the difference of the properties ___________ and the __________.

Answer 12

gain or loss, carrying value and the sells price.