Financial 5 Flashcards
In a sale-leaseback transaction, a gain resulting from the sale should be deferred at the time of the sale-leaseback and subsequently amortized under US GAAP when:
- The seller-lessee has transferred substantially all the risks of ownership.
- The seller-lessee retains the right to substantially all the remaining use of the property.
2 only
A six-year capital lease entered into on December 31, year 1, specified equal minimum annual lease payments due on December 31 of each year. The first minimum annual lease payments paid on December 31 year 1, consists of which of the following?
Interest Expense
Lease Liability
Interest expense = NO
Lease liability= YES
At the inception of the capital (finance) lease, the guaranteed residual value should be:
Included as part of minimum lease payments at present value.
As an inducement to enter the lease, Graf Co., a lessor, granted Zep, Inc., a lessee, 12 months of free rent under a five-year operating lease. The lease was effective on January 1, Year 1, and provides for monthly rental payments to begin January 1, Year 2. Zep made the first rental payment on December 30, Year 1, in it’s year one income statement Graf should report rental revenue in an amount equal to:
1/5 of the total cash to be received over the life of the lease.
Under US GAAP, One criterion for the capital lease that the term of the lease must equal a minimum percentage of the leased property’s estimated economic life at the inception of the lease. What is the minimum percentage?
75%
On 01/01/X1 JCK Co. Signed a contract for an eight year lease of its equipment with a 10 year life. The present value of the 16 equals semiannual payments in advance equaled 85% of the equipment’s fair value. The contract had no provision for JCK, the lessor, to give up legal ownership of the equipment. Should JCK recognize rent or interest revenue in year 3, and should the revenue recognized in year 3 be the same or smaller than the revenue recognizing year 2 under US GAAP?
Year3 revenues recognized = Interest
Year 3 amount recognized compared to Year 2 = Smaller
Lease A does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. lease B does not transfer ownership of the property to the lessee by the end of the lease term but the lease term is equal to 75% of the estimated economic life of the leased property how should the lessee clarify these leases under US GAAP?
Lease A and B = Capital Lease
Which of the following is a criterion for a lease to be classified as a capital lease in the books of a lessee under US GAAP?
A. The lease does not transfer ownership of the property to the Lessee.
B. The lease contains a bargain purchase option.
C. The lease term is equal to 65% or more of the estimated useful life of the leased property.
D. The present value of the minimum lease payments is 70% or more of the fair market value of the lease property.
B. The lease contains a bargain purchase option.
On 01/01/X1, Frost company entered a two-year lease agreement with Ananz Co. to lease 10 new computers. The lease term begins on 01/01/X1 and ends 12/31/X2. The lease agreement requires Frost to pay Ananz 2 annual lease payments of $8000. The present value of the minimum lease payments is $13,000. Which of the following circumstances would require Frost to classify and account for the arrangement is a capital lease under US GAAP?
A. Ownership of the computer remains with Ananz throughout the lease term and after the lease ends.
B. Frost does not have the option of purchasing the computers at the end of the lease term.
C. The fair value of the computers on 01/01/X1 is $14,000.
D. The economic life of the computers is three years.
C. The fair value of the computers on 01/01/X1 is $14,000.
Bain company entered into a 10 year lease agreement for a new piece equipment worth $500,000. At the end of the lease Bain will have the option to purchase the equipment. Which of the following would require the least to be accounted for as a capital lease under US GAAP?
A. The lease includes an option to purchase stock in the company.
B. The purchase option at the end of the lease is at fair market value.
C. The present value of the minimum lease payments is $400,000.
D. The estimated useful life of the least asset is 12 years.
D. The estimated useful life of the leased asset is 12 years.
Which of the following is a characteristic of a capital lease under US GAAP?
A. If you drop location does not appear in the build sheet of the lessee.
B. The present value of the minimum lease payments at the beginning of the lease term 75% or more of the fair value of the property at the inception of the lease.
C. The lease contains a bargain purchase option.
D. The lease term is substantially less than the estimated economic life of the leased property.
C. The lease contains a bargain purchase option.
Which of the following criteria would result in a lease being classified as an operating lease under US GAAP in and finance lease under IFRS?
A. The lease term is for 80% of economic life of the asset.
B. The present value of the minimum lease payments amounts to 80% of the fair value of the asset.
C. The lease transfers ownership of the asset to the lessee at the end of the lease term.
D. The lease contains a written bargain purchase option.
B. The present value of the minimum lease payments amounts to 88% of the fair value of the asset.
In a sale-leaseback transaction accounted for under IFRS, a gain resulting from the sale should be deferred at the time of the sale leaseback and subsequently amortized when:
I. The seller-lessee accounts for the lease as a finance lease.
II. He seller-lessee accounts releases and operating lease in the sales price equals fair value.
III. The seller-lessee accounts for the leases and operating lease in the sales price is above fair value.
IV. The seller-lessee accounts for the leases and operating lease and the sales price is below fair value.
I and III only.
Abel company leased equipment to Baker under a non-cancelable lease with the transfer of title. Will able record appreciation expense on the least asset and interest revenue related to the lease?
Depreciation expense = no
interest revenue = yes
What are the components of the lease receivable for a lesser involved in a direct financing lease?
The minimum lease payments plus residual value.
