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orie_350_tvm_bond_lease_summary - The lease transfers...

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ORIE 350 Summary of February 25, 2008 1. Time Value of Money c i i nom = ( 29 n i 1 PV FV + = single payment - + = i 1 ) i 1 ( A FV n annuity + - = - i ) i 1 ( 1 A PV n annuity ______________________________________________________________ 2. Bonds ( 29 ( 29 n n i 1 FV i i 1 1 A PV + + + - = - The “bond equation” The annual yield for a bond is 2 × i for bonds that pay interest semi-annually. If i is the unknown, then the use of iteration, a financial calculator, a programmable calculator, or a spreadsheet is required. Interest Expense = i × Bond Payable The amount in the Bond Payable account is also known as the carrying value. The account must be updated every 6 months when interest is paid. ______________________________________________________________ 3. Leases The Lease Checklist: 1.
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Unformatted text preview: The lease transfers ownership to the lessee at the end of the lease term. 2. The lease contains a bargain purchase option 3. The lease term is equal to 75% or more of the estimated economic life of the asset 4. The present value of the lease payments amounts to 90% or more of the fair value of the lease property. If any one is true, it is a capital lease! If none are true, it is an operating lease. For #1 or #2 is true, depreciate over the useful life. Otherwise, depreciate over the lease term. For sale/leaseback, you cannot show a gain at the time of the sale/leaseback. It is amortized over the entire lease. The gain is not shown as a gain at all, but as a reduction in the depreciation expense....
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