15 - Chapter 15 Accounting for Leases 1 Recommended...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 15 Accounting for Leases 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Recommended problems from the text E15-1, 3, 4, 5, 7, CPA exam questions 1, 2, 3, 4, 5, 6, 7 P15-6, 7, 16 2
Background image of page 2
Topics 1. Overview 2. Operating leases—lessees 1. Don’t meet capital lease conditions 2. Off balance sheet assets and liabilities 3. Recording of expense 4. End of period accruals 5. Required disclosures 3. Capital leases—lessees 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Topics…more 1. Overview 2. Operating leases 3. Capital leases—lessees 4. Operating leases—lessors 1. Recording of expense 2. End of period accruals 5. Capital leases—lessors 1. Two additional criteria 4
Background image of page 4
Lessor Accounting for leases 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Overview Typically, there are two ways for companies acquire assets: they can buy them or they can lease them. In a lease transaction there are typically two parties: a lessee who gets use of an asset for a price and a lessor who makes an asset available for a price 6
Background image of page 6
Operating leases 1. Operating leases don’t meet any of the four conditions which, if met, require capital lease accounting 2. Rights (assets) and obligations (liabilities) are not recorded on the balance sheet. As 7
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example The Small Clothing Store leases space in a shopping mall on 1/1/2012. The lease requires that the company make annual lease payments of $12,000 at the JE on 1/1/2012 Prepaid lease 12,000 Cash 12,000 Adjusting JE on 12/31/2012 8
Background image of page 8
Example The Small Clothing Store leases space in a shopping mall on 1/1/2012. The lease requires that the company make annual lease payments of $12,000 at the JE on 1/1/2015 Prepaid lease 13,113 Cash 13,113 12,000*1.03^3 9
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Gap year end 2010 footnote disclosure for Operating Leases Note 9. Leases We lease most of our store premises and some of our corporate facilities and distribution centers. These operating leases expire at various dates through 2031. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at
Background image of page 10
Capital leases Capital leases must meet at least one of four criteria: 1. Lease transfers ownership at conclusion 2. Lease contains a “bargain” purchase option (ultimate purchase is “reasonably 11
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Capital leases In addition to meeting on of the four criteria on the previous slide… 1. Rights (assets) and obligations (liabilities) are recorded on the balance sheet. As such, they affect balance sheet based ratios such as return on assets or debt to assets 2. Expenses are recorded to reflect amortization of recorded leased asset (similar to depreciation expense) and interest on the outstanding lease obligation during the period 3. Interest expense incurred in relation to capital leases are reflected as reductions to cash from operating activities. Amortization of leased assets is added back to net income so that no net cash flow related to capital leases relates to amortization. Reductions in lease liabilities are reported as negative financing cash flows 4. As always, adjusting journal entries have to be made, if 12
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/08/2011 for the course ACC 814 taught by Professor Manzon during the Summer '11 term at BC.

Page1 / 47

15 - Chapter 15 Accounting for Leases 1 Recommended...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online