CHAPTER 54 LESSEE: ‘ACCOUNTING question 641 in the acnunting fo 180 on thy my, ANSWER 541 vg pareraph 22, provide that at Te alee venga iht of a i “s ews sal be counted fF by Te lee "Sy a tne ease std ims 16 paceraph 5, provides that lease jy TRS 16, ersgung policy election fo apply fc" sae an eur ego ana tn dowcorotional exemptions f. Short-term lease & Etevate Tene Sete diferent, «Ieee may oF may State dient gunting if te lease fo sor rat og ane oof fo vale. Abert term A shorter eof commencement date of hoe {la ato urea oon its in Foe mach is low va of the underlying at The ae nse tandard does not provide fr aq ae Low value asset ia a matter of professional judane Angi teat eae sal brig aut edn the vale of the tt ot geo the ant ben =? fcraine ring cue dvs taal fetta het ach a 8 js defined as lease tht as arn wt 0M Hal meosurement of i iil ut RHE Of use asset. 18 gis defined 1 ja defined 08 08 ont thot ue eso underng cxet oo el apn 24, prides tha tbe eer al ph 2t dr cost at commencement és whi 0 value of leare payments at ita ig feasts ents made to lessor on a amen Mas esha te pase aren see ie ; ot nang removing a ea ek Be | oun ince va wih eset air of te incurred by the lessee are payments bythe lesa othe ase re PayMipe reimbursement or ssumpion ate of the less, ‘should be deducted fom the cot of the ge ncn Tekan see din ote ‘ie oot have tind sretd improvements are not iia dit cts and wt ‘amt apres ofthe ight of we ae si prep r e aa nal perenne ey an cout ane te Se teary depot funda SORE RE SL the Hee incremental oss of otinng «ese ince i he lease had mot been ease expiration iQuestion 643 spin the presentation othe iho ANSWER 54-3. son O48 A ot sy on stg 38 ris 16 praerarh 29, provides tha IM eb of tae ante a coat feat yor ggg 28 rove tht the Glpvection oven ly ” Ma] A P Pe hal enna the lease fans ‘The carrying amount ofthe right of use SY foe iMolue of lease Parmente, z: ase ingg, any rence’ ofthe lam obi Beg, Yt ats eal De ican ig ‘Paragraph 47 provide ras ee ta et om the fase aoset a8 a separate line tem fal prong, fo . be rea anil position F vit nerd rate cannet be relly deni fama posit I nil ening es a= On rte mpi int te he inet ‘pe ites the present valut of pase payments and the Bec cd residua vl fo eu the al of te ens ond inl ae ela incremental orang rates he cite utente om okra Sih Sian ancl over sini em tod st cont mana compre tn loving rpm tre a mee te fae en 1 Tua eae payments {Vaal Tose pavments { Buwite price of a purchse opin if he lee ‘aonb? cram to eerie to 4 Aaountexpcted tobe payable byte Ie der © ‘ua alae guarantee «Termination penalty i thee ‘hea fa termination oto Ecutory costs, such ‘nan sheritive, the lee may faci SSL appropriate line’ ete Ben Spdigunderving set mold bo psn tht Forex (8 ight fh eet ty beaded ws property, an od eee However, disclosure is necessary, question 64-4 pli the depreciation of right of use ANSWER 6-4 paragraph 32, provides thatthe Jw i depeche ight owe ase err he td Ae ‘dering ot ner the folowing eaione 4 Bae rn cunerahp ofthe unin tt Bete we cdo ek ra sea nd real atte rnnee and insurance are natin i ‘tepensed immediatly. 1 so tena of owner a BEES ley fina anni train wb ‘ete betcen the wea feof th ton Suk oo) 5 =Multiple choice QUESTION 546 Rs, t fa Right of use asset and lease ae Sgt stent ote Zaha Ease ik bo nt ee 7, fh 0 ot np 1 Uader TRS, «lessen regina aes ™ 6 pp prevent vale eee vat eatneae date on atone tet cet cared by og Sat damn? Rother eh of tat a ‘Bama tam Ter Thea iy sent obligation ‘Testor han nS, 2 The lessee may apply the operstin 7 me ‘thet sonditon? te gy Storie lense spo ue asht Topo ay NO] carson an #00 Line stam sence tl equate 2 Soe 5 ere eee § aint oe a vue ects atic al bags same i ORS rie pen cee cas ee imtoo 1 He raat fa. Twelve months or less 1B She months or © Twelvermenth lease with 4. Twoyear lea os wh opin ke eg erm, whichever F eeullie of the the es chev id ees ati o the asset orth ee ter : {rue about low value hag © longer 4. Alea ability is measured + The abolute amount of ese payment 1 The prevnt va of uc ae The freent value of faed Ea gaa TR Rivatusof ue underpin ase 1 The lene payment include all of he flowing exept Beiodic rental Termination penalty if the lease term reflects the termination option Bxercise price of a purchase option that isnot 2 P Asta dos nt gush Ie ithe aatre af the seas Sa ue a, Hippel noo ow see ULF these statements are true ettat lune Soar tee Ue ae ‘ove ses 4 Prosent value of expected sh inflows, er wa pe ha i » ng | orTION 64-7 Multiple chojog AQquesTION 47 aay, 1. Which is ot imcluded in leage nt ‘a Any payment required by g ° reasonably outin toby eaanShs Coma for services and tae a Reed payments oer teed ag 4 aunt uaranted bya pay 2. Which int par of the Ite paymen, 4 The rental payments calle fy ny eu ae guarantee ny & ty rndul value a th en fe 4 Af perme ae underiing asset under a punt pe reasonably certain be exree* hans The late payments include al, except fe save earn The ines ciate. can & The purchaee option thet sss exercised ta 4 Keypayment that the lee mun ‘to extend or renew the leage Wenig 4 What isthe interest rate used when temps ‘ate cannot be determined? descr’ published rate & The leste's average borrowing rate 4. The leste's incromental borrowing rate 5 What isthe trestment of initial direct cost issue the lessee ina finance lease? & Added tothe lease liability ed othe Ba nt ofthe igo carrying amo § Bxpensed immediatiy . 4 Ade othe carrying amount of he ih ‘nd lease Labiley ment concen reg oi Tor the lessee? al 9, * tO get and related laity gy elute amount of he tee a aed ha Solute amount of * feta ad red a event Yale ofthe ee dea « Ristenes seeemane eer a ante i ting depreciation of « eee should deduct ae case ie ea he residual VlUE GUA and de See a rit oeth ocd resi vale sod Sesueren gofal life of the asset ngvrasted reste vale ad dpe yp 2 Ae MEE ie ofthe ae, = re ia i aa spermato ne a. The lessor pays the lei fr the dir. laos Fcopnact aginst the en ne «Three has no obiatin sled oh eal tale 4 The lease pay the leno fr te din. ‘he carrying amount ofthe righ of ww set wold be evolzlly reduced by Me parment . 8 Paton ofthe lease payment alla ites © Parton ofthe Tee pee alae re Ot the lease Habity Depreciation of the ht of we ae Apri ee 0d deprecats rthe pee10. What is the gost of a right g 4 Rt Of uae nance lame? absolute sum WN 54-8 Multiple choicg + Tasha thee, te ee ay ‘The present value of the ton taced by” ® Baan ig The present value s i spear ots dnounted at ag, st pl the dep a . The present value‘ the gat 2p ent Lae the dopant fe ane, vs executory costs discounted or P&¥mens aes 14298 payment les the portion age th met 4. The present value of the faa”, Be WO] 5 TASS pment leis discounted at an approprg eit vaca 8 ‘me PrOpate ree or ger iat ete ntl nea “ pss T'vear specified equal annual jee, ot the Ba ed NF Geet 225t ofeach yar The frst an en a a ee Pent ereeeduction ofthe lose Laity shoal 4, Tass than inthe fourth yoar More sham in the fourth year ‘pe oume ein the sixth year {1 Me than inthe sixth year ‘ ‘Ase ida ten sear finale resin gaa promenta. The reduction ofthe lee Hay ne ed pear sbould equal 4 The eurent lability shown fr th ase a ted of Sew yar The curentLiablty shown forth sea ted of second year «The reduction of the leas aly in th iat ese 41 One-tentn of the orginal tase litity ANSWER 54.8 Ben ab 6 by hae eee = Rhea itnite Byhach eis Pst o ajar + eet K Bae 1 ae et ees a ne iy ‘ 4 i 6 Relter interest expense ne fee Lay q gen Sunes Iam eid Sd ae Asis eee pana cal ee) ' 1CHAPTER 55 7 oe LESSOR ACCOUNT, S58 IG on 602 QUESTION 55-1 “ Explain the accounting for ley tinder th new lease tlandard®® & the ge bse the a ly ragraph 81, provides ih, 3, pareranh 8 at eae 36, fase on te Pat of he las a nd agg, Y este basis 6 moe representa gg ae, ANSWER 55-1 (er Genet om the fh gt te, Lessor accounting under the new Je a tated al sum MH tenine, | TERS 16, paragraph 61, provides A] sao psite sent in an cpertig ee nny paras rovides that g Oe, 3° lessor as rent inca m lees a8 ether ah operating lene gt Korg] * nomen hetero ae i nance lease or agp, set chll Pav a tt ie pete ends on the substance ie Tiatement of Snancal poten eet the frm of the coneace "OF tances f° eh ne me ote ‘oder TFS 18 paragraph 68, oy Hon normal oe a tt ey 4 Ta ae transfers cuneraip of he the lane ie on af a ay ti ®. The tes ha option opt ta a which is expected toe raft kane Val a date th op a ‘th epi of he eae is aan a ited ec : 6. Th em orm infor the mae pet of wa sre gas ac cee a ee ‘Under USA GAAP, "major part’ means at but "4 Bec Mt a ae "Th prevent vale of the lap payment ell Hof tab ee aerate ‘Under USA GAAP, “substantially all” means! ‘the fairvalue of the underlying asset: Digit edison cen eb cra emanate rei dnt ‘toe depecition policy for deprecibe unin ut Thal be consistent with the lessrs el Stn for similar aet. Any security depoitcefunds ‘ition shal be sssnted pon the ae iy elo. 3 eas oa ved yh ae fo ‘Sica unared at ncn indo Sire, Ina iret cote incase yews a i thallbe added tothe earring amount 75 ‘asset and recognized as at expense vet ‘wt same uss aseQUESTION 55-3 spain th flowing in connection Ieee mea 1. Gross investment 2 Netinveotment inthe lease 5 Uncared interest income 4 Ina direct cost ANSWER 65-2 1. Gros inetnent in the ease on ineste in he os sy rutile nie eae 1 eft residual vale, whether asennad Ae knee = 2 et insesiment in the lease “ ‘Then investment inthe lease i ‘sep an al etc nae oe 8 Uncariedintrest ince Toner nterst nore the ofthe lesor which i the diference te Siventment and tet investnnt in he 4 Initial rect cost Ina direct financing lease, the inital det tins bythe lessor is ade to the cost ofthe asset opti Investment in the lease, between es ‘This would effectively spread the initial iret exi=e fhe lease tarm and reduce the amount of interes! = Accordingly, tho interest rate implicit i the ‘ecomputed so as to include the initial dro" ‘metsurevient ofthe lease recuivale. hag: Vere ron 85-4 Ee Ht a This is equal to he ease term plus the absolute sree te amount ‘gan wlosaas seat te in the lease — Thi i egal set ines al the resent 5 Ate eros ental plus the present vale eae vane d value, whether gulranteed or ungenaed interes income ‘This the nanl mone Ue icssoe whichis the difference beens the gras ‘Rsunent and netinvostmen into ae ‘in —"The amount ql to he eines i he * 200 or fie valuo of the aoe, whichever slower 5. Conf ods sold This equ to he ns of est wt us the initial direct eet incurred byte les. Grae profit This isthe wun formula ees mins st (Cpods wal. a inns 1 ial drt cost — Thi amount end ‘Stns pe eae a componn ft of odeQUESTION 655 Mute choice (qrgy "* Rant esi in 808 by the iggy Herald ind nme &. When received At the lease inception ‘ © At the lease expiration 4 In the period ered bythe egy When should a lessor * Fonrefundable lease bons past See in eae Meg a. When reosived 1 Ar the inception of the lease ©. At the lease expiration 4. Over the lease torm time ppmeos aie eno SOARS Saari ee aa, 1 ee eles fe mincing balance bas © Sum ofunts base Cath bate ease term 4. In an operating lease seconded ont ema payments sd e® SS" carded an reduction of deprecation i Aiested Etewoon reduction Tes stints ipterest expense: a g, Hecrded ah rettion in the ease rec 4 Tesi te rental Income, “20 = 5 Which statement characterizes an operating lest! 1 The lessee rocords depreciation and intr. The lvoe records a ase baton & Bete ant ie of he nding wt lessee for the duration of the lease tr (1 The lessor records depreciation and lease fee ANSWER 55.5 rn a oe 1956 Multiple cholce arpa, cation of «148 is normaly re endo tbe ae crm hd te pel ne ag fonts aptin ote esa oe Pa Ate Bit dete etary See ltteer 1 an ee lr ay oi i” eH ttre to 4 The ean mente being at east Sos { Recoreaaaar Sing uation wld ping nat ng a nus i a us seater of ownership £0 the Teese aps purchase at aval below th fi tele A maoe pr «em mr a i i neat i ae of lage of land end Dulin. the ese payments ‘fa be aplit to relative fir value of the to Sans cS facut of Be we ceomes {ng sum of dit method RSGRine to method devised by the entity. smi there isa Tease of land and bling and bite TS land not traneerred, generally thee ue a {The land in operating 4 the and ad balding are an operates Me ee 66-6 Mea a oeQUESTION 88-7 Multiple choicg tinue Sie a ESSESSERERLH png, a Substance over form "th et & Pridenee ay @ Neutrality ' & Competeness 2 Whioh is correct regarding leasy 1 880 cnt, & The lease transfers ownershiy " The ke contain prc 1th © The lense term i ogual tare? life of the underlying asset. Mot ¢ Tila mena Shotts , 4. Which enon woud require la i A The lease does not transfer title to i There is an uncertain purchase oot © Retpetea igo eget ‘Significantly more than the fair value (pitt | 4. These arn Slow te nit ea 4 One of he fur determinative criteria spol tht the eae rm bal ‘4. The economie life of the underlying eit 1. 90 percent ofthe economic lif ofthe nee 75 percent of the economic life ofthe eet 4. 50 percent of the economic life of the axe 5. One ofthe four determinative criteria fora finan ae is that the present value at the bogsnning a 8 at ‘term of the lease payments equals or exceds The fie alu of the undriing ase 1 90 percent of the fae value of the undersing 78 percent ofthe fir vale ofthe unsere 4140 perent othe fit Valu ofthe under ANSWER 55-7 he ne oo 558 Maltbe choice arp prevent I Be ses gy, Sete pyentse 4 et Joase and at be ae te er ayaa ef » ies oflease payment ce ie. ie ee cael | eee Pome ase inentinent int fang aso he fee of th ast a SEEMS aa acaenae toF he asset minus guaranteed rea ate pi eatea ei e eh ores ee ence ow oe asia ike acer esol cine at cqistinicenerace ea _ EE eingeterine Eaeernans meee msmaeett ie ‘ass shall rscognize aust eld under ian ae ‘a eceivable at sn amount eal the 4 Grose investment in the nse \ Netinvestment in the a © Grom rentals 4 esidual va, whother rane reat Co.Te lease reuivabe 0 8 direct fgg, The gros amount f lease paymga, Tho ference botween than, cing lease, Seance, Oe ie, y 2 OFT th aa ag aioe oT 7 yg bo amortied Ove he eye ‘ale ofthe leased asset. ag sl Sed “em ne The present value of lease payin, ey > iawet e'amorized ove the 4. The cost of the asset genet eee Ur Shin the depreciation 7 ea, [> eit 6.The primary diference bet Does, "he recognized ‘at the lease, ee 8 ie, io core! and a sales type lease is the fei 4 Manner in which rental cole rental income, "tone are Ne 2, Depreciation recorded each year : Recopition of the manufacture se, the inception of the lease, alee &.Alcaton of intial direct cost inure, over the lease term, te suet MBO sg : rng ts el » te om cca fps 1 fea err tered end aaron ais eet mane TAllof the flowing woul be included tieteg | 4. Guarani ceidua! valu & Unguronoed retusa © A purchase option that is reasonably certain 4. All would be included 8.Under a direct financing lease, the excess of eon rentals over the cost of the underlying asset sls ecognized as income of the lessor 4 Ininreasing amounts during the term of below 3 hetnetant anon during te er of ee §, Inderemsing amounts during the term of te iat 41 After the cost of the underlying asset has be it ‘wcovered through rentals,QUESTION 559 Multiple chojcg sles pe late, what ig yp 1 Pecsinnt ite lotct "At ith a. Prat vale of ate peng, & Aisin amount of oc men cc. Present value of lease pay ‘ente of ungusranteed residual yeu? Dlag a, Suma abectate aman, 8, Py, ‘unguaranteed residual value Pay, "YI _ “ ‘2.Net investment in sles type lean ig, 7 * Gm vets in te neon Se 1s Gost the undeting ane mb oie omen 3 Fe mm sad, ‘8. Which statement characterizes a saleg oes a. The lessor recognizes: interest, a Teal FREE mY tt ea See Wir wiede/ ae eg Boe cae ae See ree eda ota a Bu esteem remus Belcan Sete tre 4 The profton a finance lease transaction for len xe sre manufacturers or dealers should Not be recognized separately from finance se 1 Be recognized in the normal way’ on the tasin Only be recognized at the end ofthe leases 4. Be recognized on a straight line over the w= ‘5.In. sales type lease, interest revenue shoul be Ignored ‘ern rer the las tam ning ner Toor ah, over ‘si ect ln even ter ot te Feat val ofthe ete penny ‘Preseijue of the asset or 2 ai wlchover i oer "yg foie Theme 1 Feet wbiheer geet a ag ” the ota fuer ee, Jat the eoet Of goods wld set alain inne foes trae ee eenrnied vb py Re curated onda nr dat & gthe elgg et Z aguratne der de + Bowel ttetene ane aaa serail rel ie ee = = 4 [i coat ofthe underlying seta para ie excess ofthe fair value of uneryng meat he PMotion of ee lease over the ean ant shal ‘aria hy the dealer lesor a2 Uneaenod income fom a sales tp lse 1 Unesenod income from a direct Gren ase {© Manufacturer prof from aslo fp es 41 Manufacturer profit om a diet Ennsing Ise NGWER 05-9