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Flashcards in Leases Deck (10):
1

Capitalize at cost: Asset & Liability Recorded at Present Value of Future Lease Payments

Leases

2

Future minimum rental commitments

By year - for 5 years

All remaining years as a group

Leases

3

Same as for lessee (Title- BPO or Substance)- PLUS:

Collectability of lease payments is predictable

No uncertainties about the lessor reimbursing the lessee for costs incurred

Leases

4

Risk of ownership does NOT pass

No asset or liability is recorded on the financial statements

Leasehold improvements - capitalized and depreciated over the lesser of lease life or leasehold improvement's life.

Leases

5

Rent revenue recorded

Leased property remains an asset and depreciated by lessor

If payments fluctuate over the term of the lease- rent revenue recognized on a straight line basis

Leases

6

Interest Revenue (or expense for lessor) decreases with passage of time

Principal amount increases with each payment

Carrying amount of Lease decreases

Leases

7

Any profit on the sale is deferred and amortized

Exception: If PV of lease payments is 10% or less of the asset's FMV- the gain is recognized

If PV of lease payments is greater than 10% of FMV and the lease is operating- all of the gain is recognized except the amount of the PV of the lease payments

Leases

8

Payments begin at the start of the lease period

Think: Rent/Mortgage payments are Due at the first of the month

Leases

9

Payments begin after the end of the first year

Think: An annuity that pays you at the end of each year

Leases

10

Risk of ownership passes to lessee by:
Title,
Bargain Purchase Option (BPO),
Substance - Lease is more than 75% of asset's useful life or PV of minimum lease payments are more than 90% of fair value

Leases