Flashcards in Capital Lease Depreciation, BPO, and Residuals Deck (22)

1

## Four important items to consider are:

###
1. BPO

2. The unguaranteed residual

3. Lessee guarantee of the residual

4. Third party guarantee of the residual

2

## For the portion of residual guaranteed, the guarantor pays any shortfall in cash. TF

### True

3

## BPO is excluded from the minimum lease payments. TF

### False, included/capitalized

4

## Unguaranteed residuals are included in minimum lease payments. TF

### False

5

## Unguaranteed residuals only effect the ___'s accounting. They are included in gross lease receivable at nominal value, and net lease receivable at present value.

### Lessor

6

## Lessee guarantee of residual is part of the lease. TF

### 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

## In third party guarantees lessees are not involved. TF

### True, only the lessor and is included in lessee minimum lease payments and the accounts for the lessor

8

## Depreciation is always based on the _____ capitalized amount at inception.

### Initial

9

## If criterion 1 or 2 is met, the lessee bases deprecation of the asset at the lease term. TF

### False, useful life of the asset at inception.

10

## 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

### True

11

## If criterion 1 or 2 is NOT met, the lessee will use the (useful life/lease term) as the asset depreciation base.

### Lease term, and no residual unless lessee guarantees

12

## 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.

### Useful life

13

## In the amortization table, the CV of the lease first number is the (sum of all lease payments/PV of min lease payments).

### PV of min lease payments

14

## Depreciation expense (criteria 1 or 2 met for lessee) = ________ /useful economic life.

### PV of min lease payments. NOT Asset FMV or any other valuation.

15

## The BPO is added the the asset value when the lessee is calculating depreciation. TF

### True

16

## 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.

### Added

17

## Third party guarantees have what effect on lessee depreciation?

### None, take the PV of present lease payments / by the lease term to find depreciation in this case.

18

## Third party residuals occur when a third party guarantees the residual. Reflect on how both the lessee and lessor journal entries are calculated.

###
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

## 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.

### Leased asset, Leased liability, fair value

20

## 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.

###
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

## BPO lessee and lessor journal entries would include...

###
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