Exam 15: Leases

M Corp.recorded a capital lease in February using an annuity due present value table.The company's December 31 statement of cash flows using the direct method will report:

Prepayments made by the lessee on an operating lease are considered to be:

Discuss the three major types of leases that may apply to the lessor.How do they differ?

Each of the independent situations below describes a capital lease in which annual lease payments are payable at the beginning of each year.The lessee is aware of the lessor's implicit interest rate. For convenience,here are some table values: Required: For each situation determine the amount of the annual lease payment,as calculated by the lessor.

Hamilton Security leased equipment to American Parcel Service for a 16-year period,at which time possession of the leased asset will revert back to Hamilton.The equipment cost Hamilton $16 million and has an expected useful life of 22 years.Its normal sales price is $23 million.The present value of the minimum lease payments for both the lessor and lessee is $20 million.The first payment was made at the inception of the lease. Required: How would American Parcel Service classify this lease if it prepares its financial statements using U.S.GAAP? IFRS? Why?

Warren Co.recorded a right-of-use asset of $800,000 in a 10-year Type A lease.The interest rate charged by the lessor was 8%.Under the new ASU,the balance in the right-of-use asset after two years will be:

On January 1,2016,Calloway Company leased a machine to Zone Corporation.The lease qualifies as a direct financing lease.Calloway paid $240,000 for the machine and is leasing it to Zone for $34,000 per year,an amount that will return 10% to Calloway.The present value of the minimum lease payments is $240,000.The lease payments are due each January 1,beginning in 2016.What is the appropriate interest entry on December 31,2016?

If the leaseback portion of a sale-leaseback transaction is classified as an operating lease:

For the lessee to account for a lease as a capital lease,the lease must meet:

ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct financing lease.The cost of the asset is $120,000.The lease contains a bargain purchase option that is effective at the end of the fifth year.The expected economic life of the asset is 10 years.The lease term is five years.The asset is expected to have a residual value of $2,000 at the end of 10 years.Using the straight-line method,what would Best record as annual depreciation?

On January 1,2016,Salvatore Company leased several machines from Nola Corporation under a three-year operating lease agreement.The lease calls for semiannual payments of $15,000 each,payable on June 30 and December 31 of each year.The machines were acquired by Nola at a cost of $90,000 and are expected to have a useful life of five years with no expected residual value. Required: Prepare the appropriate journal entries for the lessee from the inception of the lease through the end of 2016.

What is the book value of the lease liability on Reagan's December 31,2017,balance sheet (after the third lease payment is made)?

Use the following to answer questions Refer to the following lease amortization schedule.The five payments are made annually starting with the inception of the lease.A $2,000 bargain purchase option is exercisable at the end of the five-year lease.The asset has an expected economic life of eight years. -What is the effective annual interest rate?

Leasehold improvements usually are classified in a balance sheet as:

For a capital lease,an amount equal to the present value of the minimum lease payments should be recorded by the lessee as a(n):

The lessee normally measures the lease liability to be recorded as the:

One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to the interest rate used to discount minimum lease payments?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Following the guidance of the new ASU,the total decrease in earnings (pretax)in Karla's December 31,2016,income statement would be: