Ch 15 Slides_Student

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: the lease term. When the leased asset is depreciated over the When asset’s economic life, residual value at the end of the asset’s economic life matters. Case 1 Case Otherwise, residual value at the end of the lease Otherwise, term matters. Case 2 Case 15-34 Slide 35 Residual Value Case 1: Lessee Obtains Title to Leased Asset The only impact on the lessee is the The determination of depreciation expense. determination The cost of the asset will be reduced by the estimated residual value at the end of the assets’ economic life and depreciated over the economic life of the asset. the 15-35 Slide 36 Residual Value Case 2: Case Lessor Retains Title to Leased Asset Lessor In determining the lease payment amount, In the lessor will reduce the fair value of the asset by the present value of the residual value (both guaranteed and unguaranteed) at the end of the lease term. at The reduced fair value becomes the value used to calculate the lease payments. used 15-36 Slide 37 Residual Value - Example On January 1, 2011, Sans Serif Publishers, Inc., leased a color copier from CompuDec Corporation at a price of $479,079. The lease agreement specifies annual payments beginning January 1, 2011, the inception of the lease, and at each December 31 thereafter through 2015.The estimated useful life of the copier is seven years. At the end of the six year lease term, ending December 31, 2016, the copier is expected to be worth $60,000. CompuDec manufactured the copier at a cost of $300,000 and its interest rate for financing the transaction is10%. 15-37 Slide 38 Residual Value Guaranteed Guaranteed Residual Value Sometimes the lease agreement includes a guarantee Sometimes by the lessee that the lessor will recover a specified residual value when custody of the asset reverts back to the lessor at the end of the lease term. When the residual value is guaranteed, the lessor as well as the lessee views it as a component of minimum lease payments. 15-38 Slide 39 Residual Value Guaranteed Guaranteed Residual Value Guaranteed Lessee guarantees the $60,000 re...
View Full Document

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.

Ask a homework question - tutors are online