Exam 18: Leases

A lease agreement includes the following provisions: Inception: 1/1/x0 Annual lease payments of $6,000 are due 12/31/x0, x1, x2 Annual lease payments of $4,000 are due 12/31/x3, x4, x5 There are 6 lease payments in all Lessor's implicit rate of return: 12% This is a finance lease to the lessor How much interest revenue is recognized in 20x0 by the lessor (assume a calendar year fiscal year)?

In a sale and leaseback arrangement, the lessee is also:

LMN made the following journal entry relating to a finance lease: Therefore, LMN must be the:

Lessor Company rented a machine to Lessee Company on January 1, 2014, for a period of 3 years.Rent of $8,000 is due January 1, of each year (starting in 2014).The lease qualified as an operating lease for both the lessor and lessee.In addition to the monthly rentals, the lease contract required Lessee Company to pay $2,000 on January 1, 2014 (this is non-refundable).The accounting period ends December 31.Complete the entries required for Lessor Company on the following dates, using the straight line method. (a)January 1, 2014: (b)December 31, 2014:

A sale and leaseback occurs when one party sells an asset to a second party who then leases it back to the first party.

All of the following are methods of avoiding capitalization except:

When a non-refundable down payment on a leased asset is made in advance under an operating lease, at the payment date, the lessor credits:

RST entered into a direct financing lease agreement, which required rentals of $9,600, each year-end.The lease term was for ten years and a 14 percent rate of return is expected by RST.The cost of the machine for RST was (rounded to the nearest dollar):

Geisler Company leased a building from Ryan Company for 5 years.The first year of the lease was forgiven with payments beginning in the second year.No journal entry is required until the second year.

LXR leased to LXE a computer that cost the lessor $15,000.The explicit interest rate is 15%; rentals are paid at each year-end; and the lease term is 3 years.Residual value at the end of the lease term is $3,000.Assume this is a direct financing lease. Requirement 1: LXE retains the computer at the end of the lease term at a BPO cost of $2,000. (a)The rental amount computed by lessor is, $ _. (b)The amount the lessee should capitalize is, $ _. Requirement 2: How much interest should be recognized at the end of year 1, in the above situation by the: (a)lessor? $________ (b)lessee? $ _. Requirement 3: At the end of year 1, in the above situation, how much would the principal be reduced for the (a)lessor's lease receivable? $ and (b)lessee's lease liability? $ .

The following information relates to a lease contract: The lessee guarantees the residual value at 1-1-x4. There are no uncertainties with respect to collectability of lease payments or performance by lessor. (a)Determine the annual lease payment (b)Classify the lease for both lessee and lessor (c)Record the 2014 entries for both parties

On January 1, 2014, ABC INC.leased a machine to MNO.The lease was for a 10-year period, which approximated the useful life of the machine.ABC INC.purchased the machine for $120,000 and expects to earn a 10 percent return on its investment, based upon an annual rental of $17,754 payable in advance each January 1st.Assuming that the lease was a direct financing lease, what should be the interest entry on ABC INC.'s books on December 31, 2014?

All long-term leases should be capitalized in the accounts by the lessee.

When the lessee guarantees the residual value at the end of the lease term, the:

Amanda Company leased an office building for six years for an annual rent of $170,000.The lessor agreed to forgive the first year of the lease (i.e.payments would not begin until the second year).The entry in the second year would include a debit to:

Under ASPE, if a lessor's estimated future cash flow collections under finance leases are in doubt, an impairment loss may have occurred.

Under a sales-type lease, the difference between the cost of the leased asset and the lease receivable is accounted for by the lessor and lessee as follows:

RST entered into a direct financing lease with ZAB, which called for seven annual rentals of $3,500 (interest rate 12 percent)to be paid at the end of each year.The lease also contained a bargain purchase option allowing ZAB to purchase the asset for $2,500 after making the seventh annual rental payment.The cost of the asset must have been:

When the lessor is financial intermediary, a lease will usually qualify as a finance lease.

Which of the following would be excluded from both the minimum lease payments and net lease liability at inception for the lessee?