Explain capitalization criteria 2 transfer of

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: nsfer of ownership 3. Bargain purchase option 4. Lease term => 75% of Capital Lease, #3 NO NO Lease term 4 yrs. Economic life FMV of leased 4 yrs. property is unknown. economic life of leased property lease payments => 90% of FMV of property 5. Present value of minimum YES Chapter 15-43 100% Guaranteed Residual Values Illustration (LESSEE) Prepare an amortization schedule that would be suitable for the Velde. Lease Payment $ 16,228 16,228 16,228 16,228 5,000 4,377 3,192 1,889 454 * 10% Interest Expense Reduction of Liability $ $ 16,228 11,851 13,036 14,339 4,546 Lease Liability 60,000 43,772 31,921 18,885 4,546 0 Date 1/1/07 1/1/07 12/31/07 12/31/08 12/31/09 12/31/10 * rounding Chapter 15-44 Special Accounting Problems Illustration (LESSEE) Prepare all of the journal entries for the Velde for 2007 and 2008. Journal entry 1/1/07 1/1/07 12/31/07 12/31/07 Lease computer Lease liability Lease liability Cash Interest expense Interest payable 60,000 60,000 16,228 16,228 4,377 4,377 13,750 ($60,000 – 5,000) / 4 = $13,750 Chapter 15-45 Depreciation expense 13,750 Accumulated Depreciation Special Accounting Problems Illustration (LESSEE) Prepare all of the journal entries for the Velde for 2007 and 2008. Journal entry 1/1/08 Interest payable Lease liability Cash 12/31/08 12/31/08 Interest expense Interest payable 3,192 3,192 13,750 4,377 11,851 16,228 Depreciation expense 13,750 Accumulated Depreciation Chapter 15-46 Bargain Purchase Options Present value of the minimum lease payments must include the present value of the option. Only difference between the accounting treatment for a bargain purchase option and a guaranteed residual value of identical amounts is in the computation of the annual depreciation. Chapter 15-47 Lessee Disclosures For capital leases, disclose Gross amount of assets recorded under capital leases. Future MLP in the aggregate and for each of the five succeeding years. Total minimum sublease rentals to be received in the future under noncancelable subleases. Total contingent rentals. Chapter 15-48 Lessee Disclosures For operating leases in excess of one year, disclose Future minimum rental payments required in the aggregate and for each of the five succeeding fiscal years. Total of minimum rentals to be received in the future under non-cancelable subleases. For all operating leases, disclose rental expense, with separate amounts for minimum rentals, contingent rentals, and sublease rentals. Chapter 15-49 Lessee Disclosures Provide a description of the lessee’s leasing arrangements including, but not limited to The basis on which contingent rental payments are determined. The existence and terms of renewal or purchase options and escalation clauses. Restrictions imposed by lease agreements such as those concerning dividends, additional debt, and further leasing. Chapter 15-50 Accounting by the Lessor Benefits to the Lessor 1. Interest Revenue. 2. Tax Incentives. 3. High Residual Value. Chapter 15-51 Accounting by the Lessor The Lessor...
View Full Document

This note was uploaded on 04/08/2009 for the course ACG 3482C taught by Professor Tinaker during the Spring '09 term at University of Florida.

Ask a homework question - tutors are online