Capital Lease Depreciation, BPO, and Residuals Flashcards Preview

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Flashcards in Capital Lease Depreciation, BPO, and Residuals Deck (22)
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1
Q
Four important items to consider are:
A
1. BPO
2. The unguaranteed residual
3. Lessee guarantee of the residual
4. Third party guarantee of the residual
2
Q
For the portion of residual guaranteed, the guarantor pays any shortfall in cash. TF
A
True
3
Q
BPO is excluded from the minimum lease payments. TF
A
False, included/capitalized
4
Q
Unguaranteed residuals are included in minimum lease payments. TF
A
False
5
Q
Unguaranteed residuals only effect the ___'s accounting. They are included in gross lease receivable at nominal value, and net lease receivable at present value.
A
Lessor
6
Q
Lessee guarantee of residual is part of the lease. TF
A
True, they are included in minimum lease payments fro both parties considered for criterion 4 and included in leased asset and liability at present value for the lessee. Included in gross lease receivable at nominal and present value for the lessor.
7
Q
In third party guarantees lessees are not involved. TF
A
True, only the lessor and is included in lessee minimum lease payments and the accounts for the lessor
8
Q
Depreciation is always based on the _____ capitalized amount at inception.
A
Initial
9
Q
If criterion 1 or 2 is met, the lessee bases deprecation of the asset at the lease term. TF
A
False, useful life of the asset at inception.
10
Q
If criterion 1 or 2 is NOT met, its assumed that the asset will return to the lessor at the end of the lease term, even if it IS a capital lease. TF
A
True
11
Q
If criterion 1 or 2 is NOT met, the lessee will use the (useful life/lease term) as the asset depreciation base.
A
Lease term, and no residual unless lessee guarantees
12
Q
If criterion 1 or 2 is NOT met, the lessee will use the (useful life/lease term/tax depreciable life) as the asset depreciation base.
A
Useful life
13
Q
In the amortization table, the CV of the lease first number is the (sum of all lease payments/PV of min lease payments).
A
PV of min lease payments
14
Q
Depreciation expense (criteria 1 or 2 met for lessee) = ________ /useful economic life.
A
PV of min lease payments. NOT Asset FMV or any other valuation.
15
Q
The BPO is added the the asset value when the lessee is calculating depreciation. TF
A
True
16
Q
The difference between the PV of the residual at inception - residual at the end of the lease term is _____ to the PV of lease payments at inception to record depreciation on an asset to reverted back to the lessor.
A
Added
17
Q
Third party guarantees have what effect on lessee depreciation?
A
None, take the PV of present lease payments / by the lease term to find depreciation in this case.
18
Q
Third party residuals occur when a third party guarantees the residual. Reflect on how both the lessee and lessor journal entries are calculated.
A
Lessee:
Leased Asset (PV of the annuity)
Lease Liability (PV of the annuity)

Lessor:
Lease Receivable (Nom Val of payments + Nom Val RV)
COGS (BV of Asset)
Unearned Int (Plug)
Equipment (BV of Asset)
Sales (FV of Asset (which is PV of the annuity + PV of the RV))
19
Q
On the lessees books, an unguaranteed residual lease would include a dr. to _____ ______ and a cr. to _____ ______ for the _____ value of the equipment in the lease.
A
Leased asset, Leased liability, fair value
20
Q
Unguaranteed residuals occur when there is no contracted BPO in place. The PV of the UGR is the Salvage Value x the PV future sum. This amount is _____ from both _____ and ______ when the lessor is recording the sale.
A
Lessee:
Leased Asset (PV of the annuity)
Lease Liability (PV of the annuity)

Lessor:
Lease Receivable (Nom Val of payments + Nom Val RV)
COGS (BV of Asset - UGR(which the is PV of RV))
Unearned Int (Plug)
Equipment (BV of Asset)
Sales (FV of Asset (which is PV of the annuity + PV of the RV) - UGR)
21
Q
BPO lessee and lessor journal entries would include...
A
Lessee:
Leased Asset (PV of the annuity + PV of the BPO)
Lease Liability (PV of the annuity + PV of the BPO)

Lessor:
Lease Receivable (Nom Val of payments + Nom Val BPO)
COGS (zero)
Unearned Int (Plug)
Equipment (Credited for Lessee amount)
Sales (zero)
22
Q
When approaching a lease question first determine whether is it a ______ or an ________ lease. Next determine do I have to draw a _____ to answer the question. Third find out what is the treatment of the ______.
A
Operating or capital, table, residual