Flashcards in Capitial Leases Deck (22)
The 4 criteria needed to determine whether a lease is a capital lease as opposed to an operating lease are:
1. Lease title is transferred
2. Lease contains a bargain purchase option
3. Lease term is at least 75% of remaining economic life of asset leased at inception
4. PV of min lease pmts at the inception of the lease is at lease 90% of the market value of the leased asset.
If any ONE of these criteria are met, the lease is classified as an CAPITAL lease
(TTBPO 75 or 90 jingle)
Additional criteria must be met for the lessor to recognize a capital lease as a sale. TF
True, for it to be recognized as a sale revenue must be collectible and the process must be substantially complete
The lease term consists of two parts. The _____ ________ _____ and periods covered by bargain renewal options.
Non-cancellable fixed portion
Executory costs include:
Insurance, maintenance, property taxes
Executory costs are always (expensed/capitalized).
Expensed, never capitalized
The PV calculation used in criteria #4 is the lesser of which 2 rates?
The lessor's implicit rate
The lessee's incremental borrowing rate on similar debt
With STL's, on the lessor side, the guarantee status effects which two accounts?
Sales and COGS are subtracted by the PV of the unguaranteed residual.
What is a sale leaseback?
When the owner of an asset sells it and immediately leases it back.
A major leaseback occurs when:
The PV of the minimum lease payments is greater or equal to 90% of the assets FV. In this situation, the gain is always deferred and amortized against depreciation expense.
If the leaseback is a capital lease the gain is recorded in a ________ asset account and _______ as a reduction in dep exp.
contra leased, amortized
If the leaseback is an operating lease, the gain is recorded in a ____ account and amortized as a reduction in _____ expense
In minor leases (PV of payments is less than 10% of assets FV) no deferral of revenue is recorded. TF
In less than major but more than minor (PV of payments between 10% and 90% of assets FV) gains are deferred. TF
Lessees are required to disclose the gross amount of assets recorded under capital leases. TF
Lessees are required to disclose executory costs incurred. TF
True, but not factored into the actual lease payment amount
Lessors are required to disclose nothing regarding a general description of the lease. TF
Lessors are required to disclose the net lease receivable amount. TF
Sale capital leaseback gains are recorded in operating income. TF
False, asset valuation allowance
Sale operating leaseback gains are recorded in an asset valuation allowance. TF
False, a deferred credit
Free or uneven lease payments received by the lessor should be recognized as revenue when the lease payment is received. TF
False, recognized as revenue on a SL basis and prorated over the life of the lease
Direct costs should be capitalized and amortized on a a SL basis by the lessor over the life of the lease. TF