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Chapter 21notes
Course: ACC 406, Spring 2012School: Tarleton
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Word Count: 745
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21 What Chapter is a lease? - contractual agreement between a lessor and a lessee Lessee - right to use the specific property (individual or company leasing) Lessor - Specific property owned by the individual or company Who are the lessors that own this property? Banks Captive leasing companies Independents Advantages of Leasing 100% financing at fixed rates - leases are often signed without requiring a down...
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21
What Chapter is a lease? - contractual agreement between a lessor and a lessee
Lessee - right to use the specific property (individual or company leasing)
Lessor - Specific property owned by the individual or company
Who are the lessors that own this property?
Banks
Captive leasing companies
Independents
Advantages of Leasing
100% financing at fixed rates - leases are often signed without requiring
a down payment
Credit stipulation is not as stringent as traditional loans - no credit check
Protection against obsolescense - lease contract written to allow upgrades
of computers, electronics and such
Flexibility - lease term written basically to your preference
Less costly financing - companies/individuals find leasing cheaper than
other forms of financing
Tax Advantages - capital leases create depreciable assets; operating leases
create immediate expenses
Off-Balance-Sheet Financing - do not add debt to Balance Sheet on
certain types of leases (not nearly as prevelent)
Three types of leases:
operating lease - no intention of ever owning the item
capital lease - favorable that the item will be owned
hybrid lease - initially no intent to own; but then changes mind
In order to record a lease as a capital lease, the lease must be noncancelable
The capital lease must also fit just one of the 4 criteria tests
Transfer of ownership - if the lease transfers ownership at the end of the
lease, it must be classified as a capital lease
Bargain-Purchase Option - allows the lessee to purchase the leased property
at the end of the lease period for a price that is significantly lower
than the property's expected fair value at the date the option
becomes exercisable.
Economic Life (75% Test) - If the lease period equals or exceeds 75% of the
asset's economic life, the lessor transfers most of the risks and
rewards of ownership to the lessee.
Recovery of Investment (90% Test) - if the present value of the minimum
lease payments equals or exceeds 90% of the fair market value
of the asset, then the lessee needs to capitalize
Operating lease - the lessor records leasing revenue; the lessee records leasing
expense (postage meter, phone systems, etc.)
lessor treats this leased item as a fixed asset and depreciates
tax law stipulates it must be depreciated for 3 years
Capital lease - the lessor records the leased equipment as inventory and if they
are financing, records the lease as a receivable.
Lessee records the leased equipment as a fixed asset and depreciates
for the normal life of the asset. If the lessee is financing, it is booked
as a lease obligation.
In IFRS, there are no operating leases; all leases are capital leases
This is causing a huge convergence issue between U.S. GAAP and
IFRS.
Pitney Bowes is providing a postage meter for use for $25.00 a month.
The first payment is 3/31/10; the postage meter was purchased by
Pitney Bowes for $1,300.00 on 12/31/2009
Lessor
12/31/2009 Postage Meter - Fixed Asset
Cash
3/31/210
Cash
Leased Equipment Revenue
1,300.00
(1,300.00)
25.00
(25.00)
Lessee
No Entry
Leased Equipment Expense
Cash
25.00
(25.00)
Honda Insight is under a lease to own contract of $21,950.00; interest rate of 9.5% for 4 years
on 3/28/10 with the first payment due at the time of purchase
The Honda Insight was purchased by the lessor for $13,000.00 on 3/25/10
Lessor
3/25/2010 Inventory - Honda Insight
Cash
13,000.00
(13,000.00)
3/28/2010 Leased Equipment Receivable
Leased Equipment Revenue
Cash
Cost of Goods Sold
Inventory
21,402.88
(21,950.00)
547.12
13,000.00
(13,000.00)
4/28/2010 Cash
Interest Income
Leased Equipment Receivable
547.12
(169.44)
(377.68)
Amount
Interest
# of Years
Pmts per Year
Payment
21,950.00
0.095
4.00
12.00
547.12
Interest
3/28/2010
4/28/2010
5/28/2010
6/28/2010
7/28/2010
8/28/2010
9/28/2010
10/28/2010
11/28/2010
12/28/2010
1/28/2011
2/28/2011
3/28/2011
4/28/2011
5/28/2011
6/28/2011
7/28/2011
8/28/2011
9/28/2011
10/28/2011
11/28/2011
12/28/2011
1/28/2012
2/28/2012
3/28/2012
4/28/2012
5/28/2012
6/28/2012
7/28/2012
8/28/2012
9/28/2012
10/28/2012
11/28/2012
12/28/2012
1/28/2013
2/28/2013
3/28/2013
4/28/2013
5/28/2013
6/28/2013
7/28/2013
8/28/2013
9/28/2013
10/28/2013
11/28/2013
12/28/2013
1/28/2014
2/28/2014
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
23.00
24.00
25.00
26.00
27.00
28.00
29.00
30.00
31.00
32.00
33.00
34.00
35.00
36.00
37.00
38.00
39.00
40.00
41.00
42.00
43.00
44.00
45.00
46.00
47.00
48.00
169.44
166.45
163.44
160.40
157.34
154.25
151.14
148.01
144.85
141.66
138.45
135.22
131.96
128.67
125.36
122.02
118.65
115.26
111.84
108.39
104.92
101.42
97.89
94.34
90.75
87.14
83.50
79.83
76.13
72.40
68.64
64.85
61.03
57.19
53.31
49.40
45.46
41.49
37.48
33.45
29.38
25.28
21.15
16.99
12.79
8.56
4.30
Principle
547.12
377.68
380.67
383.69
386.72
389.78
392.87
395.98
399.12
402.28
405.46
408.67
411.91
415.17
418.45
421.77
425.10
428.47
431.86
435.28
438.73
442.20
445.70
449.23
452.79
456.37
459.98
463.62
467.30
470.99
474.72
478.48
482.27
486.09
489.94
493.81
497.72
501.66
505.64
509.64
513.67
517.74
521.84
525.97
530.13
534.33
538.56
542.82
21,950.00
21,402.88
21,025.20
20,644.53
20,260.84
19,874.12
19,484.33
19,091.46
18,695.48
18,296.37
17,894.09
17,488.63
17,079.96
16,668.06
16,252.89
15,834.44
15,412.67
14,987.57
14,559.10
14,127.23
13,691.95
13,253.23
12,811.03
12,365.33
11,916.10
11,463.31
11,006.94
10,546.96
10,083.33
9,616.04
9,145.04
8,670.32
8,191.84
7,709.57
7,223.48
6,733.55
6,239.73
5,742.01
5,240.34
4,734.71
4,225.07
3,711.40
3,193.66
2,671.82
2,145.85
1,615.72
1,081.39
542.83
0.00
Lessee
No Entry
Leased Equipment - Fixed Asset
Lease Obligation
Cash
Lease Obligation
Interest Expense
Cash
21,950.00
(21,402.88)
(547.12)
377.68
169.44
(547.12)
Ford F-150 is under a lease-to-own contract of $35,000 on 3/31/2009; original cost is $25,000 bought by
lessor on 3/1/2009. The lease agreement is 48 payments of $1,000.00 starting on 4/30/2009
Lessor
3/1/2009 Inventory - Ford F-150
Cash
25,000.00
(25,000.00)
3/31/2009 Leased Equipment Receivable
Leased Equipment Revenue
Cost of Goods Sold
Inventory - Ford F-150
35,000.00
(35,000.00)
25,000.00
(25,000.00)
4/30/2009 Cash
Interest Income
Leased Equipment Receivable
1,000.00
(270.83)
(729.17)
4/30/2009
5/30/2009
6/30/2009
7/30/2009
8/30/2009
9/30/2009
10/30/2009
11/30/2009
12/30/2009
1/30/2010
2/28/2010
3/30/2010
4/30/2010
5/30/2010
6/30/2010
7/30/2010
8/30/2010
9/30/2010
10/30/2010
11/30/2010
12/30/2010
1/30/2011
2/28/2011
3/30/2011
4/30/2011
5/30/2011
6/30/2011
7/30/2011
8/30/2011
9/30/2011
10/30/2011
11/30/2011
12/30/2011
1/30/2012
2/29/2012
3/30/2012
4/30/2012
5/30/2012
6/30/2012
7/30/2012
8/30/2012
9/30/2012
10/30/2012
11/30/2012
12/30/2012
1/30/2013
2/28/2013
3/30/2013
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
23.00
24.00
25.00
26.00
27.00
28.00
29.00
30.00
31.00
32.00
33.00
34.00
35.00
36.00
37.00
38.00
39.00
40.00
41.00
42.00
43.00
44.00
45.00
46.00
47.00
48.00
35,000 / 48
Payment
Interest
Principle
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
1,000.00
270.83
729.17
48,000.00
13,000.00
35,000.00
35,000.00
34,270.83
33,541.67
32,812.50
32,083.33
31,354.17
30,625.00
29,895.83
29,166.67
28,437.50
27,708.33
26,979.17
26,250.00
25,520.83
24,791.67
24,062.50
23,333.33
22,604.17
21,875.00
21,145.83
20,416.67
19,687.50
18,958.33
18,229.17
17,500.00
16,770.83
16,041.67
15,312.50
14,583.33
13,854.17
13,125.00
12,395.83
11,666.67
10,937.50
10,208.33
9,479.17
8,750.00
8,020.83
7,291.67
6,562.50
5,833.33
5,104.17
4,375.00
3,645.83
2,916.67
2,187.50
1,458.33
729.17
(0.00)
Heartland Rentals is offering a nice, state of the art computer for only $49.98 a month
First payment is 3/31/2009; computer was purchased by the lessor on 12/31/2008 for $300.00
The accumulated depreciation balance on this fixed asset is $50.00
Lessor
12/31/2008 Fixed Asset - Computer
Cash
Depreciation Expense
Accum. Depreciation
300.00
(300.00)
50.00
(50.00)
Lessee
No Entry
3/31/2009 Cash
Leased Equipment Receivable
49.98
(49.98)
Leased Equipment Expense
Cash
49.98
(49.98)
4/30/2009 Cash
Leased Equipment Receivable
49.98
(49.98)
Leased Equipment Expense
Cash
49.98
(49.98)
5/31/2009 Cash
Leased Equipment Receivable
49.98
(49.98)
Leased Equipment Expense
Cash
49.98
(49.98)
6/30/2009 Cash
Leased Equipment Receivable
49.98
(49.98)
Leased Equipment Expense
Cash
49.98
(49.98)
Lessee comes in and wants to buy the computer - you sell it for $500.00 on 7/15/2009
7/15/2009 Cash
Fixed Asset - Computer
Accum. Depreciation
Gain on Sale of Fixed Asset
500.00
(300.00)
50.00
(250.00)
Small Office Equipment Expense
Cash
500.00
(500.00)
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Chapter 13 HomeworkProblem 13-34a.Asset 1Asset 2Asset 3Sec 1231 gain15,000(17,000)5,0003,00015%450Increase in Taxb.Asset 1Asset 3Sec 1231 gain15,0005,00020,00015%Increase in Tax3,000Asset 2Ordinary LossTax Rate(17,000)(17,000)
Tarleton - ACC - 406
Chapter 13 HomeworkProblem 13-34a.Asset 1Asset 2Asset 3Sec 1231 gain15,000(17,000)5,0003,00015%450Increase in Taxb.Asset 1Asset 3Sec 1231 gain15,0005,00020,00015%Increase in Tax3,000Asset 2Ordinary LossTax Rate(17,000)(17,000)
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Problem 13-34aAsset #1Asset #2Asset #3Net Section 1231 gainIncrease in taxesbAsset #1Asset #3Net Section 1231 gain15,000.00(17,000.00)5,000.003,000.0015%450.0015,000.005,000.0020,000.0015%Increase in taxAsset #2Ordinary losstax rat
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Jeannie, a single taxpayer, retired during the year, to take over the managementof some rental property. She had the following items of income and expense:Salary prior to retirement dateDividends from domestic corporationCity of Los Angeles bondsPens
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Extra Credit for Exam #2Problem 1SalaryBond InterestInterest IncomeRental IncomeRepair expense2,400Property Taxes700Depreciation1,200Capital lossCapital GainAlimonyAdjusted Gross IncomeLess: Itemized DeductionsMortgage InterestReal Prope
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Tax Research Problem 4-63Facts Ann is a graduate student whom is awarded a $1,000 scholarship. Shes a half time teaching assistant at the State University and is paid $7,000 per year andher tuition costs are waived. Further, the cost of tuition would
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Tax Research Problem 5-70Facts The principals involved in this case are Tom Williams and the KansasCorporation. They are equal partners. During their partnership, Williams inventeda new process and the partnership had the process patented. Before usin
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Tax Research Problem 7-68FactsMr. Smith is the principle involved in a major accident in that his legs were severelyinjured in an automobile collision. Long term rehabilitation is the prescribedremedy by a physician. Furthermore, the physician prescri
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Tax Research Problem 11-65Facts Texas Corporations disassembles old automobiles for the purpose of resellingtheir components. At yearend inventory is done only by estimate of employees and old quotejournals.Issues When Texas has to pay for disposal
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AccountsReceivableCashAllowanceUncollectibleDue fromGeneral FundMaterials &Supplies1.2.3.L-TermAdvanceRestrictedAssetsUtilityPlantAccumDepr.Work inProcess4.AccountsPayableP/R TaxesPayableBondsPayable--NetAssets5.6.-Cost
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Proprietary Funds - funds that are used to account for activities similar to those often engagedin by profit-seeking businesses. That is, users of goods and services are charged amountsin hopes of at least covering the costs of providing those goods and
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Chapter 1In a free enterprise, why is government necessary?There are simply services that cannot be priced reasonably enough to encourageprivate interest. (education, fire and rescue) just because the average person maynot be able to afford these serv
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page 701.GeneralEstimated Revenues ControlBudgetary Fund BalanceAppropriations ControlEstimated Other Financing Uses Control1,350,000(50,000)(1,225,500)(74,500)SubsidiaryTaxesLicenses & PermitsIntergov't RevenueCharges for ServicesFines an
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Chapter 2State and local governments are encouraged to prepare a Comprehensive AnnualFinancial Report (CAFR) in accordance with GASB Codification Sec. 2200GASB does require the following minimum set of statements and disclosures thatmust be filed:1.
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Chapter 3Modified Accrual Basis accounting is a hybrid of sorts using elements of both accrual and cashbasisGovernmental funds do record receivable (taxes receivable) and liabilities (salariespayableModified accrual basis of accounting is only used f
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1.Using both fund accounting and government-wide accounting (which emulatesfor-profit accounting) create the journal entries for the following transactions:a.In the General Fund, an invoice is received to which a purchase order was notcreated for $25
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Jefferson CountyGeneral Fund Journal EntriesDecember 31, 20121Estimated RevenuesAppropiationsEstimated Other Financing UsesBudgetary Fund Balance250,000(180,000)(40,000)(30,000)2EncumbrancesFund Balance3RevenueDeferred Revenue4Taxes Rec
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State Government - Special Revenue FundFish and Game Fund Journal EntriesDecember 31, 2012bb3481Estimated RevenuesAppropiationsEstimated Other Financing Sources1,400,000(1,680,000)(300,000)2Budgetary Fund Balance - encumbrances3CashLicen
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1.CashOther Financing SourcesOther Financing UsesCashDR / (CR)720,000(720,000)20,000(20,000)2.Due From Other GovernmetnsOther Financing Sources-In3.EncumbrancesBudgetary Fund Balance-EncumbBudgetary Fund Balance-EncumbEncumbrancesExpendi
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Government -Wide AccountingGASB? - makes it mandatory for Government-Wide Accounting to be used alongwith fund accountingWhy?Most investors recognize financial statements as presented for a for-profit entity.The government has been trying to soicit o
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For the following transactions, complete the journal entries for both fund accounting and government-wide accounting1.$20,000 of deferred property tax income is reclassified as current2.A purchase order from the general fund is issued in the amount of
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Chapter 10Not-for-Profits do not have any legal residual claim to the net assets of an organization.That is why the term Net Assets is used instead of Equity as found in for profit entities.The activities for private not-for-profits are commonly financ
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1 SuppliesAccounts payable15,000(15,000)2 Pledges ReceivablePledges Receivable-UncollectibleUnrestricted Revenue-Contributions95,000(4,750)(90,250)3 Animal Care ExpenseSupplies16,700(16,700)4 Accounts PayableCash18,200(18,200)5 CashPled
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Record the following transactions to both the general journal andT-Accounts. Record the expenses by function.bb.The Amy Grant Music and Arts Association had the following trial balanceas of January 1, 2010CashContributions ReceivableTemporary Inves
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You have just been hired as the accountant for the City of TMS.You have just completed the appropriate journal entries required forFund accounting and have completed the attached financial statements.Your task is now to complete all of the applicable j
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Transactionsbb.a.The General Fund Trial Balance for the City of Gordon as of January 1, 2010Cash20,000Taxes Receivable - Delinquent79,200Estimated Uncollectible Taxes - Delinquent(9,200)Accounts Payable(16,000)Deferred Property Taxes(12,500)
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TransactionsbbGeneral FundCashTaxes ReceivableUncollectible TaxesSuppliesAccounts PayableDeffered RevenueDue to Enterprise FundBudgetaryaGeneral FundEstimated RevenuesAppropiationsEstimated Other Finan Uses-OutBudgetary Fund BalancebDeff
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You have just been hired as the accountant for the City of TMS.Your job is to create the general journal entries for the followingtransactions, post to the appropriate T-Accounts and create thefinancial reports for all the appropriate funds. A budgetar