Leases Flashcards
If the present value of the minimum lease payments at lease inception exceeds the fair value of the leased asset,
then the amount measured initially as the finance lease asset and obligation shall be the fair value
Entering into the lease
DEBIT: right of use asset
CREDIT: lease liability
making first lease payment
DEBIT: lease liability
DEBIT: interest payment
CREDIT: cash
expenses related to lease
DEBIT: amortization
CREDIT: right of use asset
if title transfer, use the economic life of asset to divide by
DEBIT: interest expense
CREDIT: interest payable
Operating lease expense
must be recognized evenly over the lease term
amount to record as a right-of-use asset at inception of the lease
the present value of the lease payments, excluding the tax insurance costs because they are billed separately by the lessor as incurred, provided it does not exceed the fair market value of the leased asset
what year to amortize if finance lease with no title transfer and no purchase option likely to be exercised
must amortize the asset over the SHORTER of either the economic useful life or lease term
lessee records finance lease using which amount?
LOWER of pv of min lease pmt OR fair market value of the leased property
finance lease: how to depreciate the asset
use PV of lease payments + PV of purchase option
divide by economic (useful) life.
finance lease: how to amortize the asset if theres NO purchase option or title transfer
amortized on a straight-line basis over the shorter of the lease term or useful life
how to record lease liab at beginning o lease term?
lease pmt * int rate known to lessee
+
purchase option price * PV of one (known to lessee)
when does operating lease generally takes effect
when the lessee assumes control over the leased property
**this sometimes doesn’t go in line with when the first lease payment is made.
