Exam 8: Accounting for Leases

Why do the supporting indicators for lease classification use "major part" and "substantially all" rather than "all" in reference to the amount of time and value contained in the lease?

Which statement is correct for the lessee?

On January 1,2017,Cory Company sold a building to Billy Board Bank for $52,000,000 and immediately leased it back under a 15-year non-cancellable lease at $5,918,000 per year,payable at the beginning of each year.Billy Board used an implicit rate of 10.08% to determine the lease payments,and this rate is known to Cory.The building had a carrying value of $34,000,000 on Cory's books. Required: Assume that the lease is an operating lease for both the lessee and lessor.Prepare all necessary journal entries for 2017 for Cory (the seller-lessee)and Billy Board (the buyer-lessor).Billy Board will depreciate the building on a straight-line basis over the remaining useful life of 15 years.

For the following lease,determine the minimum present value calculation for the lessor.

On April 1,2018,Helo Company entered into a five-year lease for equipment.Annual lease payments are $15,000,payable at the beginning of each lease year (April 1).At the end of the lease,possession of the equipment will revert to the lessor.The equipment has an expected useful life of 5 years.Similar equipment could be purchased for $250,000 cash.Helo's incremental borrowing rate is 12%.The company has a March 31 year-end,and it uses straight-line depreciation for its property,plant,and equipment. Required: a.Prepare the journal entries relating to the lease and leased asset for Helo's fiscal year ending March 31,2019. b.State the amounts related to the lease that would be reported on the March 31,2019 balance sheet,indicating the balance sheet classifications,account names,and amounts.

When is it possible for the present value of the minimum lease payments to exceed the fair value of the leased property.What must the lessee do to prevent recording an overvalued asset?

Give three examples which a lessee could use to manipulate estimates,and how the wording of the accounting standards anticipate and compensate for this tendency toward manipulation.

On January 1,2017,Sandy Inc.sold an office building to Bernie Capital for its fair value of $35,000,000 and immediately leased it back under a 20-year non-cancellable lease at $3,300,000 per year,payable at the beginning of each year.Dusty used an implicit rate of 8% to determine the lease payments,and this rate is known to Kara.The building had a carrying value of $14,000,000 on Kara's books and its remaining useful life is 20 years.Which of the following is correct?

Here are the terms of a lease agreement: Required: a.Determine the amount of lease payment that the lessor would require to lease the asset. b.Compute the present value of minimum lease payments for the lessee.

On January 1,2017,Brownee Company entered a lease to rent office space.The lease requires $350,000 per year,at the end of each year,for 20 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 40 years,and its current fair value is estimated to be $6 million.The incremental borrowing rate is 5%. Required: Classify this lease and record the journal entries for the first year of the lease.

The following are the characteristics of a lease: Required: Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.

For the following lease,determine the minimum present value calculation for the lessee.

What is true respecting the economics behind leasing arrangements?

On January 1,2017,Teddy Company sold a building to Breezy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Breezy used an implicit rate of 7% to determine the lease payments,and this rate is known to Teddy.The building had a carrying value of $12,000,000 on Teddy's books. Required: Assume that the lease is a finance lease for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2017 for Teddy (the seller-lessee)and Breezy (the buyer-lessor).Teddy will continue to depreciate the building on a straight-line basis over the lease term.Explain the implications to Teddy's depreciation expense of this transaction.

On January 1,2017 Kara Inc.sold an office building to Dusty Capital for its fair value of $35,000,000 and immediately leased it back under a 3-year non-cancellable lease at $2,000,000 per year,payable at the beginning of each year.Dusty used an implicit rate of 8% to determine the lease payments,and this rate is known to Kara.The building had a carrying value of $14,000,000 on Kara's books and its remaining useful life is 20 years.Which of the following is correct?

Why do the supporting indicators for lease classification use "major part" and "substantially all" rather than "all" in reference to the amount of time and value contained in the lease?

The following are characteristics of a lease: Required: Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.Assume the lessor only earns interest on the transaction.

On January 1,2017,Pelvisee Company entered a lease to rent office space.The lease requires Pelvisee to pay $390,000 per year,at the beginning of each year,for 15 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Pelvisee's incremental borrowing rate is 9%. Required: Classify this lease for Pelvisee Company and record the journal entries for the first year of the lease.

On January 1,2017,Travic Company entered a lease to rent office space.The lease requires Travic to pay $390,000 per year,at the end of each year,for 20 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Travic's incremental borrowing rate is 10%. Required: Classify this lease for Travic Company and record the journal entries for the first year of the lease.

The following are the characteristics of a lease: Which of the following is correct about this lease?