Exam 7: Financial Assets: Cash and Receivables

Lessor Company rented a machine to Lessee Company on January 1,2014,for a period of 3 years.Rent of $6,000 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 $1,000 on January 1,2014 (this is non-refundable).The accounting period ends December 31.Complete the entries required for Lessee Company on the following dates,using the straight-line method. (a)January 1,2014: (b)December 31,2014:

Ryan Corp.enters into a finance lease agreement with a 5-year term and a bargain renewal option of 3 years.Over what period should the asset be amortized?

A lessee is usually motivated to report a lease liability as a finance lease because the lessee can capitalize the "cost" of the leased asset.

Lamont Company leases computers for a three-year term,at the end of which they are regarded as obsolete with no residual value because Lamont donates them to schools.Rents are collected at the end of each six-month period; the leases qualify as direct financing leases to Lamont (lessor).The computers cost Lamont $20,000 each.Lamont bases the rents on a 16% annual rate. (a)The semi-annual rental on one computer,rounded to the nearest dollar,is $________________________. (b)Complete the following amortization schedule for the lease of one computer. (c)Give the entries that should be made by the lessor on the following dates: (1)At the date the lease is signed: (2)At the date of collection of the first rental payment: (d)Show the lessor's income statement and balance sheet amounts with respect to the lease immediately after the first rental collection:

ABC Inc.leased a computer to the Lennox Silver Company on 1 April 2018.The terms of the lease are as follows: *** ABC Inc.company charges a half-year depreciation in the year of acquisition and a half-year in the year of disposition,regardless of the actual dates of acquisition and disposal. From the above information classify the lease from the perspective of the lessee.

A lease with a three-year term calls for a $5,000 payment at the end of each of those years.The three payments are the only ones required in the lease.The residual value at the end of the lease term is not guaranteed.The asset reverts to the lessor at the end of the term.The lessee has no way of knowing the unguaranteed residual value at the end of the lease term,or the one at the end of the asset's useful life,or the total useful life of the asset at inception.However,the lessee does know the lessor's implicit rate (10%),and the asset's fair market value at inception ($14,000).The lessee's borrowing rate on similar debt is 8%.Therefore:

In a sale and leaseback situation

Contingent rent is one of three common methods used to avoid capitalization.

Leased assets treated as a finance lease for accounting purposes and an operating lease for tax purposes will create a temporary difference.

A bargain purchase option in a finance lease affects the:

What amount of sales is recognized by the lessor in a sales type lease when the residual value is guaranteed?

In a sales-type lease with an unguaranteed residual value,the gross margin recognized by the lessor in the year of inception is:

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

State completely criterion 2 (bargain purchase option)and criterion 4 (90%)as they pertain to capitalizing leases under ASPE.Then,explain why fulfilling either constitutes a capitalized lease for the lessee.

At the inception of a finance lease which calls for payments on an annuity due basis,the lessee typically debits:

Which interest rate must be used by the lessee to account for a finance lease under ASPE?

The amount of each rental payment on a sales type lease is based on the:

If the title to a leased asset does not transfer to the lessee at the end of the lease term,but the lessee guarantees the residual,what is the period and residual value used by the lessor to depreciate the leased asset?

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

What is a sales-type lease?