Unformatted text preview: 5-106 The beauty of Guaranteed Residual value When Asset reverts to Lessor at Lower Level and the contract was UGRV
At December 31, 2054, Lessor records the reversion of Asset. Assume it was valued at $10,000 GENERAL JOURNAL Date Description Debit Credit Dec 31 Equipment inventory Loss on Reversion Lease Receivable Interest Revenue 10,000 50,000 54,542 5,458 Chapter 15-107 The Perils of Unguaranteed Residual Value Initial Direct Cost
Initial Direct Costs (Lessor)
The accounting for initial direct costs:
• For operating leases, the lessor should defer initial direct costs. For sales-type leases, the lessor expenses the initial direct costs. For a direct-financing lease, the lessor adds initial direct costs to the net investment. • • Chapter 15-108 Lessor Disclosures For operating leases, disclose Cost and carrying amount of property on lease or held for leasing. Minimum future rentals on non-cancelable leases in the aggregate and for each of the five succeeding years. Total contingent rentals included in income. Provide a general description of the lessor’s leasing arrangements. Chapter 15-109 Lessor Disclosures For sales-type and direct financing leases, disclose Components of the net investment in sales-type and direct financing leases
Future MLP to be received. Unguaranteed residual values. Unearned Interest Revenue. Future MLP to be received for each of the five succeeding fiscal years. Total contingent rentals included in income.
Chapter 15-110 Statement of Cash Flow Impact Both the lessee and lessor report cash payments for operating leases in a statement of cash flows as cash flows from operating activities. Each lease payment in a capital lease includes both an amount that represents interest and an amount that represents a reduction of principal. In a statement of cash flows, then, the lessee reports the interest portion as cash flows from operating activities and the principal portion as cash flows from financing activities. The lessor in a direct financing lease reports the interest portion as cash flows from operating activities and the principal portion as cash flows from investing activities. The lessor reports cash receipts from a sales-type lease as cash flows from operating activities. Chapter 15-111 Contingent Rentals Sometimes rental payments may be increased (or decreased) at some future time during the lease term, depending on whether some specified event occurs. Contingent rentals are not included in the minimum lease payments. However, they are disclosed in the notes to the financial statements.
Chapter 15-112 Special Leasing Arrangements
• Sale-Leaseback Arrangements – the owner of an asset sells it and immediately leases it back from the new owner. Any gain on the sale of the asset is deferred and amortized. A real loss on the sale of the property is recognized immediately. Chapter 15-113 Sale-Leaseback Arrangements
Illustration On Jan. 1, 2050, Delta sold a plane to Citibank for $900,000. The plane had a carrying val...
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