Kieso_IA_16e_PPT_Ch21v2.pptx

The liabilities section as it relates to lease

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The liabilities section as it relates to lease transactions at December 31, 2017. ILLUSTRATION 21-7 Reporting Current and Noncurrent Lease Liabilities ACCOUNTING BY THE LESSEE
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21-27 ILLUSTRATION 21-6 Sterling records the lease payment of January 1, 2018, as follows. LO 2 Property Tax Expense 2,000.00 Interest Payable 7,601.84 Lease Liability 16,379.78 Cash 25,981.62
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21-28 Operating Method (Lessee) The lessee assigns rent to the periods benefiting from the use of the asset and ignores, in the accounting, any commitments to make future payments. Illustration: Assume Sterling accounts for the lease as an operating lease. Sterling records the payment on January 1, 2017, as follows. LO 2 Rent Expense 25,981.62 Cash 25,981.62 ACCOUNTING BY THE LESSEE
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21-29 1 Explain the nature, economic substance, and advantages of lease transactions. 2 Describe the accounting for leases by lessees. LEARNING OBJECTIVES 3 Describe the accounting for leases by lessors. 4 Describe the accounting and reporting for special features of lease arrangements. After studying this chapter, you should be able to: Accounting for Leases 21 LO 3
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21-30 a. Operating leases. b. Direct-financing leases. c. Sales-type leases. Classification of Leases by the Lessor LO 3 ACCOUNTING BY THE LESSOR
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21-31 A sales-type lease involves a manufacturer’s or dealer’s profit, and a direct-financing lease does not. Classification of Leases by the Lessor ILLUSTRATION 21-10 LO 3 ACCOUNTING BY THE LESSOR
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21-32 ILLUSTRATION 21-11 Diagram of Lessor’s Criteria for Lease Classification Classification of Leases by the Lessor A lessor may classify a lease as an operating lease but the lessee may classify the same lease as a capital lease. LO 3 ACCOUNTING BY THE LESSOR
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21-33 In substance the financing of an asset purchase by the lessee. Lessor records: A lease receivable instead of a leased asset. Receivable is the present value of the minimum lease payments. Direct-Financing Method (Lessor) LO 3 ACCOUNTING BY THE LESSOR
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21-34 Illustration: Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows. The term of the lease is five years beginning January 1, 2017, noncancelable, and requires equal rental payments of $25,981.62 at the beginning of each year. Payments include $2,000 of executory costs (property taxes). The equipment (front-end loader) has a cost of $100,000 to Caterpillar, a fair value at the inception of the lease of $100,000, an estimated economic life of five years, and no residual value. Caterpillar incurred no initial direct costs in negotiating and closing the lease transaction. The lease contains no renewal options. The equipment reverts to Caterpillar at the termination of the lease.
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