Minimum 15 47 slide 48 executory costs example on

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Unformatted text preview: pier from First LeaseCorp. First LeaseCorp purchased the equipment from CompuDec Corporation at a cost of $479,079. • Six annual payments of $102,000 beginning January 1, 2011. • Payments include $2,000 which First LeaseCorp will use to pay an annual maintenance fee. • The interest rate in these financing arrangements is 10%. • Capital lease to Sans Serif. • Direct financing lease to First LeaseCorp. 15-48 Slide 49 Executory Costs - Example 15-49 Slide 50 Lessor’s Initial Direct Costs Initial direct costs The costs incurred by the lessor that are costs associated directly with originating a lease and are essential to acquire that lease essential Include legal fees, commissions, evaluating the prospective lessee's financial condition, and preparing and processing lease documents. 15-50 Slide 51 Lessor’s Initial Direct Costs Accounting treatment Direct financing leases - Increase the lessor's lease receivable by the total of initial direct costs. - Then, as interest revenue is recognized over the lease term (at a constant effective rate), the initial direct costs are recognized at the same rate (i.e., proportionally). Sales-type leases - Initial direct costs are expensed at the inception of the lease. (Costs of creating a sale transaction are considered “selling expenses.”) 15-51 Slide 52 Balance Sheet and Income Statement Whether leases are capitalized or treated as an Whether leases are capitalized or treated as an Whether Whether operating lease affects the income statement and operating lease affects the income statement and balance sheet. balance sheet. The greater impact is on the balance sheet. The greater impact is on the balance sheet. (E.g., off B/S liabilities) (E.g., off B/S liabilities) 15-52 Slide 53 Part D: Special Leasing Arrangements Sale-Leaseback Arrangements Sale-Leaseback Arrangements The owner of an asset sells it and immediately leases it The owner of an asset sells it and immediately leases it back from the new owner. back from the new owner. Any gain on the sale of the asset is deferred and Any gain on the sale of the asset...
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This note was uploaded on 02/09/2013 for the course ACCOUNTING 3000 taught by Professor Li during the Spring '13 term at CUNY Brooklyn.

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