Chapter 21 Solutions

(c) The term of the lease is equal to 75% or more of the estimated economic life of the leased asset.

Topic 842 will require the estimation of lease terms and subsequent lease payments by companies under a criteria that cautiously take into consideration, in addition to written lease arrangements, the “economic incentives for a company to exercise an option to extend a lease term or for an entity not to exercise an option to terminate a lease”. With respect to finance leases only, the lease payments will subsequently be discounted using the company’s incremental borrowing rate to reach the lease obligation. This lease obligation will then be disclosed as a liability with an offsetting disclosure of the right to use asset as an intangible asset on the balance sheet. The amount of the right-to-use asset will also include any direct cost related to the negotiation of the lease and payment by the company. With respect to capital leases, the lessee is required to separate the interest on the lease liability and the amortized right-to-use assets on the statement of comprehensive income. The payment of interest on the lease liability and lease payments are recorded in the operating activities of the statement of cash flows. The principal portion of the lease payment will be recorded within the financing activities section of the statement of cash flows.

Analysis of Issue 2: Argue for treating the lease as an operating lease and discuss the ethical implications of selecting this alternative as opposed to the capital

The right-of-use model is favored among users of financial statements who believe it would eliminate existing structuring opportunities and would result in accounting for lease arrangements based on the substance rather than the form of the transaction. (Lugo, 2009).

25. Name two places where you might find a keystone RJ45 jack in a building.

This paper will provide an overview of lease accounting. It will present the history, current status, and future implications of the latest proposed standard, as jointly issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). Furthermore, the paper will take into account relevant observations made by various proponents who are concerned about the standard, and conclude with a personal opinion on the standard and why it’s better

This project was last updated on May 19, 2015 and its estimated completion is fourth quarter of 2015. Almost every single organization gets involved in leasing activities; therefore accounting for leases is important. However, the current models have been criticized because by using the models faithful representation of leasing transactions is not always presented and therefore these models cannot meet the needs of financial statements users. The existing accounting guidance of leases does not require many lessees to recognize lease assets and liabilities. While many users and stakeholders request the change of making lessees recognize lease assets and lease liabilities, the project aimed at improve comparability and transparency among organizations by requiring the recognition and disclosure of information (“Leases,” 2015). On the last meeting, the Boards have reached several decisions, which are updated in “Lease” (2015). First, collectability is taken into account the lessor accounting. If control of asset under lease is not transferred to lessee and collectability of payments is not probable, then the lease should be classified as Type B lease. On the other hand, if control of asset under lease is transferred to lessee, then the lease should be assessed for collectability. Second, the Board modified the Type A lease. This modification affects the discount rate and so the initial net investment. The decision regarding the impairment of Type A lease assets requires lessor to assess receivable and unguaranteed residual asset for impairment. Besides, the Board no longer allows gain or loss for differences between purchase price and carrying amount of the lease liability, if the lease asset is purchased. As of the date, tentative decisions are basically related to six parts, including accounting models, scope, measurement, presentation, disclosure, and nonpublic

Accounting Standards Update (ASU) defines a lease is defined as a contract (i.e., an agreement between two or more parties that creates enforceable rights and obligations) that conveys the right to use an asset (i.e., the underlying asset) for a period of time in exchange for consideration. To be a lease, a contract needs to meet the following criteria: fulfillment of the contract depends on the use of an identified asset and the contract conveys the right to control the use of the identified asset (Thornton 2013: pg.2).

(a) A lessee would recognize an asset (the right-of-use asset) representing its right to use an underlying asset during the lease term, and a liability to make lease payments (paragraphs 10 and BC5–BC12). The lessee would amortize the right-of-use asset over the expected lease term or the useful life of the underlying asset if shorter. The lessee would incur interest expense on the liability to make lease payments.

Sweeping transformation of current lease accounting rules will have widespread impacts for nearly all companies. Will companies reduce the lease period for a term of less than one year due to the complexity of the new regulation? The globe is dynamics and also the accounting profession has to be dynamic to respond to changes that occur (Dirksen, 31). On that note, the Financial Accounting Standard Board (FASB) has introduced a new regulation on how to account for leases (codes 842-10-15-3). Based on FASB rules, leases are classified as either operating lease or capital lease. The operating lease is usually less than a year and can be canceled at any time; however, the capital lease is completely the opposite. Any rental is considered

|Costs per attendee (total costs[pic]number|  | $20.00 |$12.50 | $10.00 |$ 8.75 |$ 8.00 |$ 7.50 |

The discussion was part of FASB 's nondecisionmaking review of an analysis of comments received on the discussion paper, Leases: Preliminary Views. The

Leasing a piece of machinery or property can be beneficial for a company or individual rather than a straight out purchase. This report will define a lease, the types, and benefits. While illustrating the difference between a lessee and the lessor, showing the implantations of tax benefits each party will be able to partake in. The third aspect that will be covered is the written agreement between the parties, and how these terms can be self-defining as to what type of lease in which the parties are agreeing to.

Leasing is important in an organization whether it a private, public or not-for-profit organization. A lease is said to be a contract in which the customer has the right to use the asset for a period. The international accounting standards board (IASB) and the US financial Accounting Standards Board (FASB) publishes a proposal to improve the reporting of lease contracts. This paper is written base on the analysis of comment letter for the second exposure draft on leases (Topic 842). The organization name Lyles & McCarthy, LLP is an accounting firm and the auditor Larry L Lyles is the editor of the comment letter # 6 .The exposure drafts outlines an approach to lease accounting that would require a lessee to recognize assets and liability for the rights and obligations created by leases. The main objective of this paper is to present the right of use assets and liabilities to make lease payment in a lessee’s statement of financial position for leases in agreement with the revenue recognition and conceptual framework in accounting.

The standard of IAG Limited record lease transaction in their financial statement is that many leases entered into are operating leases, where the lesser retains substantially all the risks and benefits of ownership of the leased items. Most of the lease arrangements are entered into as lessee for whom the lease payments are recorded as an expense on a straight line basis over the term of the lease. Certain sublease arrangements are entered into as the lesser for whom the lease payments are recognised as revenue on a straight line basis over the term of the lease. However, Lease incentives relating to the agreement of a new or renewed operating lease in IAG Annual Report in 2014 are recognised as an integral part of the net consideration agreed for the use of the leased asset. Operating lease incentives received are initially recognised as a liability, are presented as trade and other payables, and are reduced later through recognition in profit or loss account as an integral part of the total lease expense (lease payments are allocated between rent payment and