13E: Wrong Answers Flashcards
Leasehold improvements are capitalized and amortized over…
The shorter of the remaining life of the lease and the useful
Life of improvements
Accrued rent receivable equation
Accrued rent receivable = rent revenue - cash collections
When the residual value is guaranteed by a third party, the lessee’s minimum lease payments include only…
The rentals
If interest payments are made on January 1st of each year on a capital lease, can the principal amount be affected on October 1st by accrued interest?
No
When calculating the initial lease liability, annual Executory costs are…3
1 not an expense or liability until incurred
2 excluded from minimum lease payments
3 not reflected in initial lease liability
In a six year capital lost starting December 31, year 1:
Does the first payment made on December 31, yr. 1 include interest expense? Does it include a lease liability?
Includes lease liability, but first payment doesn’t include interest
Expense
If the lease term is 5 years and the useful life is 8 years, what amount will be used to calculate depreciation if a bargain purchase option is exercised?
8 years
Because intend to use it over its useful life
Note disclosure: Aggregate amount for lease term
Is total remaining lease payments in the agreement
Note disclosure: amount for appropriate required period
Total lease payments over next 5 years
When a bargain purchase option exists, at the end of the lease the balance in the lease payable column should equal…
The bargain purchase option price
Failure to include the present value of the bargain purchase option price in the beginning present value of the lease would result in…
An ending balance in the lease payable column of zero
Sale leaseback arrangements are treated as though…
2 transactions were a single financing transaction if the lease
Qualifies as a capital lease
In a sale leaseback arrangement any gIn or loss is deferred and amortized over the life of the lease term if…
possession reverts to lessor
In a sale leaseback arrangement any gIn or loss is deferred and amortized over the economic life if…
Ownership transfers to the lessee
In a sale leaseback transaction, the seller lessee has retained the property, the gain on sale should be…
Deferred for both capital and operating leases
An example of an operating lease in which substantially all of the remaining use of the leased asset is retained by the lessee occurs when the lease term begins…
Within the last 25% of the asset’s original useful life
Deferred gain from sale leaseback transaction acts as…
Asset valuation allowance
Deferred gain acts as an asset valuation allowance resulting in net amount shown for leased asset being equal to…
Same carrying value as if sale and leaseback transaction had
Not occurred
A modification to a capital lease that changes the classification of the lease to an operating lease requires the transaction be accounted for as…
A sales leaseback transaction, defer gain and recognize it over
Life of operating lease
How do you record the journal entry for a capital lease payment made by the lessee?
Capital lease liability. Xxx
Cash. Xxx
How do you record the journal entry of the lessee for expenses associated with a capital lease?
Depreciation exp. Xxx
Accumulated depr. Xxx
Interest expense. Xxx
Capital lease liability. Xxx
Sales type lease
Sales revenue (the present value of the minimum lease payments) Less the carrying amount of the leased asset
is reported on the Lessor’s income statement at the inception of the lease
Direct financing lease
Interest revenue is the only item reported on the income statement
Over the lease term
Operating lease- lessee
Rental payments are recognized on a straight line basis
even though the lease calls for payments that increase over the
term of the lease
