3113-Ch21

3113-Ch21 - ACG 3113 ACG Chapter 21 Leases ©Prepared by:...

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Unformatted text preview: ACG 3113 ACG Chapter 21 Leases ©Prepared by: Deanna O. Burgess, PhD, CPA Florida Gulf Coast University Overview Overview Leases borrow assets and pay for them over time. Two kinds of leases: Capital leases transfer the risk and benefits of ownership and operating leases do not. 3 ACG 3113 Slide 2 Overview The discussion of this chapter is organized as follows: ° The Big Picture on Leases ° Specifics on Accounting for Leases ° Classification and Disclosure ACG 3113 Slide 3 4 Accounting Entries The Big The Picture Picture Lessee Capital Lessor ACG 3113 note the B/S and I/S impact and the timing of each Slide 4 Observations: Observations: Operating Observations: Observations: 5 SPECIFICS ON LEASES Accounting Steps Step 1: Capital or Operating Lease ACG 3113 Slide 5 The lessee and lessor may not account for the lease the same way Step 2: Lease Payment (always use lessor’s rate) Step 3: Initial Entry (watch which rate you use) Step 4: Interest Entry Step 5: Depreciation Entry Step 6: Lease Payment/Receipt Entry 6 SPECIFICS ON LEASES Step 1: Determine if Capital or Operating ACG 3113 C iaL s Dema o a tl e e e r i t n p a t ni L se ee s ( u mtoe fGu Iciei n mt e n o r p r r ) se o to Gu ICt r n r p r ei : o io 1 . 2 . 3 . 4 . L s t aseso n s i o p p t . e e rn r w rh f r e y a f ep or L s cn i sbra prhs oto. e e ot n agi u a p n a a ncei L s t r ≥ 5 o a e lf . e e em 7% s t i e a fs Lsr eo s ( u mtoe fGu Iciei n n mt e n o r p r r ad se o to bt o Gu I ciei n o f r pI r r ) h o to Gu ICt r n r p r ei : o io 1 . 2 . 3 . L s t aseso n s i o p p t . e e rn r w rh f r e y a f ep or L s cn i sbra prhs oto. e e ot n agi u a p n a a ncei L s t r ≥ 5 o a e lf . e e em 7% s t i e a fs P snvl e fmi u l a py et r et a o i m es am s e u nme n ( xl d g xct r css ≥ 0 o a e ec i eeu y o ) 9% s t un o t fs FV M . Slide 6 P snvl e fmi u l a py et 4 r et a o i m es am s . e u nme n ( xl d g xct r css ≥ 0 o a e ec i eeu y o ) 9% s t un o t fs FV M . 7 SPECIFICS ON LEASES Step 1: Determine if Capital or Operating ACG 3113 Slide 7 G pI re o: ruI C r n o ii t 1 Cl cbiy f e ee i t a u d . oe i i t ol a rc p s r . ltl s e s se 2 N a ru ea teeit ( s r . o j n r i i s x s l s 's m o ct n s eo p f r ac cm t ) eo n op e r me l. e I n e a c tr nr m t e r e e t f e s r re o a e h e r d cs y i i et , n f r o I n e a c tr nr m t e r e e t f e s r re o a e h e r d cs y i i et , nfr o aaa t ll a . s cpa es i e aoe ft oyeocpal a s de s no w p f a t l es : i c ts i e rt fn c g r as ye i a i osl - p nn et . D cF nn ie i ac g rt n i : Se T e as y : l- p 8 SPECIFICS ON LEASES Step 2: Determine Lease Payment ACG 3113 Slide 8 When you lease you pay for the part you use. 40% Used Pay This 60% Unused Residual -- Don’t Pay 9 SPECIFICS ON LEASES Step 2: Determine Lease Payment ACG 3113 Slide 9 Pymt x PVAD = Asset – PV Residual 40% Used Pay This 60% Unused Residual -- Don’t Pay 9 SPECIFICS ON LEASES Step 2: Determine Lease Payment ACG 3113 LaePy e t es am n Ls e es e U al dt r i e b l s o. s l y eem d y es r u n Ls o es r Dt r i epy e t ui gP Aoml : eem a m sn V f r ua n n pm xP A ) = ( M -P r sd a) yt . V( D F V V ei ul Tei t r s r t ue a o ei r f r e t a h ne et ae s d bv s ee r d o s t ei pi i i t r s r t . h ml ct neet ae Os r ai n: be v to s Ti i sma t ac rl a py e twe et e hs s i i r o a o n a m l n hr h rg tsd o t ef r uai t ea o n t b i h i e f h oml s h m t o e u pi of ad f . A u el aepy e t wn p yf rr sd a; s m e s a m s o 't a o ei ul s n wehrt er sd a i g aa t e o ht e h ei ul s u r ne d r u g aa t e , t el s o gt t eas tb c a nur ne d h es r es h s e ak t r sd a v l e ei ul au. Slide 10 9 SPECIFICS ON LEASES Step 3: First Entry Lessee Entry: Leased Asset Lease Obligation Lessor Direct Financing: Lease Receivable Asset (PPE) Sales-Type: Lease Receivable Sales CGS Inventory Sales-Type : Lease Receivable ACG 3113 Slide 11 Guaranteed Residual Unguaranteed Residual Sales CGS Inventory SPECIFICS ON LEASES Step 4: Interest Entry ACG 3113 Slide 12 Interest Entry (Remember: Not Recorded Until Time Goes By!) Lessee At the end of each accounting period , accrue interest expense: Interest Expense Interest Payable C alculated as: Interest Rate x Lease Obligation (or use amortization table) Lessor At the end of each accounting period , accrue interest revenue: Interest Receivable Interest Revenue C alculated as: Interest Rate x Lease Receivable (or use amortization table) SPECIFICS ON LEASES Step 5: Depreciation Entry ACG 3113 Dp e i t o E t y e r cai n nr ( e e br Nt Rc r e U t l Tm Ge B ! Rmme : o e o d d ni i e o s y) Ls e es e A t ee do e c a c u t n p ro , a c u t h n f a h c o ni g e i d c r e d pe i t o e p n e e r cai n x e s : Dpe i t o Ep ne e r cai n x e s Ac ml t dDp e ai n c u uae e r c t o Cl uae u i g ac l t d sn : Lf o as t i : l a et a s e sa s t ( rt ro i e f s e f e s r nf r s e c i e i n 1o 2a emt o r r e) r Lf o l a ei : a s t r v rsb c t l s o i e f e s f s e e e t ak o es r ( rt ro 3o 4a emt . c i e i n r r e) I e i t dpe i t as t d w t v l e d a s o e r cae s e o n o au l a i i yw l b a e do l a e i bl t i e t n f e s . l I g a a t e r sd a, d n d pe i t sn e f u r ne d e i u l o 't e r cae i c l a i i yw l i cu et a a o n a e do i bl t i n l d h t mu t t n f l l a e I u g a a t e r sd a, i n r sn e e s . f n u r ne d e i u l g o e i c l a i i yi n r s i bl t g o e . Nn . oe Ls o es r Slide 13 SPECIFICS ON LEASES Step 6: Payment/Receipt Entry ACG 3113 Lease Payment/Receipt Entry Lessee On date lease payment is due: Lease Obligation Int. Exp./Int. Payable Cash Lessor On date lease payment is due: Cash Int. Revenue/Int. Receivable Lease Receivable Slide 14 SPECIFICS ON LEASES Handling the Residual or BPO G aran u teed an U gu d n aran teed R u esid als L essee A sset or L iability C alculation G aran u teed R u esid al: In d in lease ob clu e ligation sin lessee ce m st reim u lessor at en of lease u b rse d th gu e aran teed resid al am n u ou t. U gu n aran teed R u esid al: Ign in lease ob ore ligation sin lessee ce h ave n ob o ligation to reim u lessor. b rse G aran u teed R u esid al: D reciate asset d n to liab ep ow ility. T is resid al is ow to lessor at en h u ed d of lease so d 't d reciate. S b on ep u tract fromd reciab cost. ep le U gu n aran teed R u esid al: T is resid al is n ow to lessor an h u ot ed d n in d in liab ot clu ed ility. T u ign hs ore an in d in d reciation d clu e ep calcu lation . G aran u teed or U gu n aran teed Ru esid al: Sb u tract fromF Vof asset th P of M eV th resid al valu e u e. L essor G aran u teed or U gu n aran teed Ru esid al: A d to receivab sin ds le ce lessor can exp th resid al b ect e u ack in eith case. er ACG 3113 Slide 15 Deprec. Calculation n/a L ease Paym ent C alculation G aran u teed or U gu n aran teed Ru esid al: Sb u tract fromF Vof asset th P of M eV th resid al valu e u e. ...
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