An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract asa. An intangible asset under the contractual-legal criterion.b. A part of goodwill.c. An intangible asset under the separability criterion.d. A building.

An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract asa. An intangible asset under the contractual-legal criterion.b. A part of goodwill.c. An intangible asset under the separability criterion.d. A building.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...

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Use the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.
Choose the correct. An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as:a. An intangible asset under the contractual-legal criterion.b. A part of goodwill.c. An intangible asset under the separability criterion.d. A building.
Explain how an entity would initially and subsequently measure its right-of-use asset and lease liability if the leased asset is classified as investment property under the fair value model? Assuming the fair value of the asset is not given at the end of the period, how will it be best computed? Compare and contrast the lease-related expenses if the entity uses the cost model and fair value model for its right-of-use asset.
When a sale-leaseback transaction occurs, if the leaseback is considered to be an operating lease, and the lease payments and sales price are at fair value, any gain on the sale a. Is amortized over the lease term by a company using IFRS. b. Is recognized immediately by a company using IFRS. c. Is amortized over the lease term by a company using either U.S. GAAP or IFRS. d. Is not recorded by a company using IFRS.
If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, an entity shall make the following adjustments to measure the sale proceeds at fair value? any below-market terms shall be accounted for as a prepayment of lease payments both of the other choices either of the other choices any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee
Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.
In a finance lease by the lessee, the leased asset is depreciated on a systematic basis consistent with the depreciation policy of the lessee. If the the lease is only for a short term and of low value, and the lease contract did not mention as to the classification of such lease nor did it contain transfer of ownership and a reasonable certainty as to the purchase option's exercisability, depreciation by the lessee is a. Based on the useful life of the leased asset. b. Based on the lease term. c. Based on the shorter of the lease term or the useful life of the asset. d. Not recognized since the lease is an operating lease and the depreciation expense shall be shouldered by the lessor who retains ownership of the leased asset.
All of the following are differences with respect to the accounting for leases, under IFRS and GAAP, except: IFRS has an additional lessee recognition and measurement exemption for leases of assets of low value (GAAP does not). IFRS allows alternative measurement bases for the right-of-use asset (e.g., the revaluation model). under IFRS, lessees use the same tests to determine if a lease should be classified as finance or operating. IFRS permits recognition of selling profit on direct financing leases at lease commencement.
Under IFRS: lessees may use alternative measurement bases (e.g., revaluation accounting) for the right-of-use asset. different measurement bases may be used for the right-of-use asset but only for leases with terms less than one year. the same guidance on collectibility of the lease payments is used by lessors as in GAAP. lessors are required to defer gross profit on direct financing leases
For a lease that transfers ownership of the property to the lessee by the end of the lease term, the lessee should: a.amortize the right-of-use asset over the economic life of the asset in a manner consistent with the lessee's normal depreciation policy for owned assets b.amortize the right-of-use asset over the lease term in a manner consistent with the lessee's normal depreciation policy for owned assets c.record each lease payment as lease expense d.combine interest expense and amortization expense and report as a single lease expense
Occasionally, a lease agreement includes a guarantee 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. Under what circumstance can the guaranteed residual value influence the amounts recorded by the lessee and lessor? In that circumstance, how are the amounts affected?
The lessor would most likely prefer a ________ or ________ lease to an operating lease. Nonoperating lease treatment would permit a financial service company lessor to remove heavy machinery and equipment, jet airlines, oceangoing vessels, and such from its balance sheet and replace it with the ________, a financial asset compatible with the nature of its business. In addition, the nonoperating lease results in the recognition of ________, rather than ________ revenue. Group of answer choices standalone; operating; fair value of the leased asset; interest income; rent direct financing; operating; net investment in the lease; financing income; unearned standalone price; sales-type; fair value of the leased asset; financing income; unearned direct financing; sales-type; net investment in the lease; interest income; rent