CH 15 Leases Flashcards Preview

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Flashcards in CH 15 Leases Deck (13)
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1
Q

lessor

A

the person lending the equipment

2
Q

lessee

A

user of the equipment

3
Q

what is a lease?

A

an asset for a specific period of time

4
Q

What is the number one method of external financing?

A

Leases

5
Q

Why a lease?

A

though it may be more expensive than buying leasing doesn’t have to worry about some of the financial and risk burdens that a purchaser normally would assume… Therefore the NET cost of leasing is less than the cost of the purchase

6
Q

in journal entries, to what can we compare operational leases?

A

notes payable

asset
Payable

7
Q

Qualifications to be capital lease

A
  1. Non-cancellable lease AND
  2. One of the following must be met
    a. transfer of ownership at end of lease term
    b. BPO exists
    c. . term is 75% or more of expected economic life
    d. PV of minimum payments = to or greater than all of Fair value of leased asset
8
Q

for the lessor, there are 2 additional criteria that must be met to recognize a capital lease

A
  1. Collectability is probable

2. No uncertainty of other costs

9
Q

Journal entries of a capital lease-SALES TYPE

A

Lease rec
COGS
Sales rev
Inventory

10
Q

Who records depreciation in a lease

A

whoever has the ASSET on the books

11
Q

What is particular about the first period of a lease?

A

There is no interest the first period!

12
Q

Annuity due

A

begin of period payments

13
Q

ordinary annuity

A

end of period payments