Lease TBS Review Flashcards
When the PV of a lease, the PV factor, and the years of a lease is known,
how are the minimum lease payments calculated?
PV of Lease / PV Factor = Annual Payments
What are the different ways to calculate interest revenue to be received over a lease period?
Total Payments - FV of Asset
or
Total Payments To Be Paid - Beginning of Year Carrying Value
What are the different ways to calculate the net investment in a lease?
PV of Asset (For net investment at lease inception)
or
Total Payaments to be Received - Unearned Interest Income
or
Investment in the lease minus in cashflows received + Interest Received
*Think: Net Investment is what has been spent on the lease, or the costs that have not yet been recovered
How is the gross investment in a lease calculated?
Sum of All Payments + Guaranteed Residuale Value
*Think: This is how much is the guaranteed total cash flows from the lease
How is the sum of interest payments calculated?
Gross Investment in Lease - Beginning PV of Lease
What is a sales type lease?
A lease used to sell equipment on an installment basis.
Gain or loss is recognized in the period of the sale
Interest is recognized over the life of the lease
Sale
DR: Cash
CR: Gross Investment in Lease
Interest
DR: Unearned Interest Revenue
CR: Unearned Income
What is a direct financing lease?
Lessor finances acquisition of the asset, and leases it to lessee with the aim to earn only interest income.
