F6M1

Question 1

Lease

Answer 1

right to use real or personal property and lessee who agrees to pay consideration for this right over a specified period of time

Question 2

To be a lease, what criteria must be met

Answer 2

1. identifiable asset

2. right to control use of asset

Question 3

To combine a contract, what requirements need to be met

Answer 3

One or more of the contracts is a lease

Contracts are entered into around the same time

parties are the same or related

Same commercial objectives

Question 4

How to know if there is a separate leasing component

Answer 4

rights benefit lessee either stand-alone or together

They are NOT interdependent

Question 5

What types of leases are for a lessee

Answer 5

operating or finance

Question 6

What types of leases for a lessor

Answer 6

operating

finance (sales-type or direct financing)

Question 7

OWNES makes what kind of lease

Answer 7

lessee - financing

lessor - sale-type

Question 8

PC makes what kind of lease

Answer 8

lessee - operating

lessor - direct financing

Question 9

If neither OWNES or only one of PC is met, what kind of lease

Answer 9

operating for both!

if it is short term, it is operating!

Question 10

OWNES

Answer 10

ownership of asset
written option to purchase
net present value is greater than 90% of fair value
Economic life is over 75%
specialized asset

Question 11

PC

Answer 11

present value of lease payments equal fair value

collectability of lease payments is probable

Question 12

Lessor sales type lease

Answer 12

one of OWNES is met

Question 13

lessor direct financing lease

Answer 13

both PC is met

Question 14

Lessor operating lease

Answer 14

one or none of PC is met

Question 15

Lessee financing lease

Answer 15

at least one of OWNES is met

Question 16

Lessee operating lease

Answer 16

none of ownes is met

Question 17

When do you recognize a lease

Answer 17

on commencement date

between the sign date and commencement date, just disclose

Question 18

Treatment of options to extend or terminate lease

Answer 18

included if it is reasonably certain

Question 19

What are included in lease payments

Answer 19

RECORD

required contractual fixed payments
Exercise option reasonably assured
Purchase price at end of lease
Only indexed or rate variable payments
Residual guarantees likely to be owed
Termination of penalities reasonably assured

Question 20

Items that Lessee have the option to include

Answer 20

NGO
Nonlease components
Guarantees of lessor debt by lessee
Other variable lease payments

Question 21

What discount rate should you use with leases

Answer 21

1st the implicit rate

2 incremental borrowing rate (only if implicit is not available)

Question 22

How are initial direct costs accounted for in leases

Answer 22

included in the valuation of a ROU asset

Question 23

What are NOT included in direct costs for a lease

Answer 23

lease term negotiations, document preparation, and credit checks

Question 24

Criteria for sales-leaseback transaction

Answer 24

exercise price is at FV

residual value guarantee

Question 25

What happens if sale lease back criteria is NOT met

Answer 25

it is treated as a failed sale, financing lease, if none of OWNES is met

Question 26

Lesse accounting for operating lease

Answer 26

no OWNES

interest expense - payment = reduction in liability

Question 27

SHort term

Answer 27

may elect to not recognize the ROU asset

Question 28

Sales-Type lease

Answer 28

OWNES, all risk/rewards, lessor will fully derecognize asset

Question 29

Direct financing lease

Answer 29

include direct costs in price of the lease and credit cash

Question 30

Operating lease

Answer 30

some risks and rewards, rental agreement, no OWNES, 1 or no PC, lessor keeps the asset on their book

Question 31

Cash flow operating lease

Answer 31

lease, variable lease, ST lease interest

Question 32

Cash flow investing

Answer 32

preparing lease for use

Question 33

cash flow financing

Answer 33

prinipal