If the lease in a sale-leaseback transaction meets one of the five lease tests and is therefore accounted for as a finance lease, who records the asset on its books and which party records interest expense during the lease period? Party recording theasset on its books Party recordinginterest expenseSeller-lesseePurchaser-lessorPurchaser-lessorPurchaser-lessorSeller-lesseeSeller-lesseePurchaser-lessorSeller-lessee

The leaseback agreement includes the details regarding the lease duration, lease payment, etc.'

If the lease in a sale-leaseback transaction meets one of the five lease tests and is therefore accounted for as a finance lease, who records the asset on its books and which party records interest expense during the lease period?

If the lease in a sale-leaseback transaction meets one of the five lease tests and is therefore accounted for as a finance lease, who records the asset on its books and which party records interest expense during the lease period?

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 8MC: At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the...

See similar textbooks

Related questions

Q: A lease agreement whereby the lessee recognized rent expense which is always equal to the rent…

A: Lease is an agreement between two parties whereby one party gives its asset for use to other party…

Q: A lease might specify that rental payments may be increased (or decreased) at some future time…

A: The contingent rentals are excluded from lease payments. Instead they are reported in the disclosure…

Q: 1. In a lease that is recorded as a manufacturer's lease or dealer's lease by the lessor, interest…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: A lessee records a lease obligation with a credit to the obligation in the amount of . the total…

A: At the commencement date, a lessee initially measures the lease liability (obligation) at the…

Q: In a Type A lease, “front loading” of lease expense and lease revenue occurs. What does this mean,…

A: Lease:An agreement of contract that is made to transfer the right to utlize the resources for a…

Q: Explain when and how a lessee accounts for a lease by the shortcut method.

A: The shortcut method is when the lessee and the lessor don't account for the lease at its…

Q: The residual value is the estimated fair value of theleased property at the end of the lease…

Q: A lease agreement whereby the lessee recognized rent expense which is always equals to the rent…

A: The lease is a type of agreement between the lessor who is the asset owner and the lessee who takes…

Q: At the beginning of a Type B lease, the lessor will record what asset and liability, if any?

A: Lease:An agreement of contract that is made to transfer the right to utlize the resources for a…

Q: A lessor will record interest income if a lease is classifi ed as:A . a capital lease.B . an…

A: Introduction: Leasing is a mechanism by which the company may receive certain capital assets for…

Q: The rent expense of the lessee maybe composed of the following: I. Straight-line amortization…

A: Rent expense is a type of fixed operating cost or an absorption cost for a business, as opposed to a…

Q: Which of the following statements is characteristic of leases? a.If a lease is classified as an…

A: LEASES ARE CONTRACT IN WHICH PROPERTY OR THE ASSET OWNER ALLOWS ANOTHER PERSON TO USE THE PROPERTY…

Q: The rent expense of the lessee maybe composed of the following: I. Straight-line amortization…

A: Lease rent are the payment to the lessor against the right to use the asset of the lessor by the…

Q: Which of the following statements is correct in accordance with AASB 16 Leases? Group of answer…

A: The question is related to Accounting for Lease.

Q: In a lease that is recorded as a manufacturer’s or dealer’s lease by the lessor, interest revenue…

A: Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A…

Q: Which of the following is not correct statement for accounting by the lessee? O a. The lessee…

A: The incorrect Statement for accounting by lessee is "The operating lease method is used to account…

Q: In a lease that is recorded as a manufacturer's lease or dealer's lease by the lessor, interest…

A: A manufacturer/dealer lessor is a lessor that either manufactures the leased asset or acquires the…

Q: At the beginning of an operating lease, the lessee will record what asset and liability, if any?

A: During the lease period if ownership of the asset is not transferred to Lessee. Lessee has only…

Q: A lessee should classify a lease transaction as a capital lease if it is noncancelable and one or…

A: Explain the criteria for defining the lease as capital lease or operating lease: As per the notes…

Q: For a lease that transfers ownership of the property to the lessee by the end of the lease term, the…

A: Lease represents the agreement among two parties known as lessee and lessor where the lessor…

Q: Rent received in advance by the lessor for an operating lease should berecognized as revenue a. when…

A: Lease is an agreement between two parties in which one party that is Lessor provides its asset for…

Q: At the beginning of a Type B lease, the lessee will record what asset and liability, if any?

A: Type B lease implies to the lease in which insignificant portion of the useful life of the asset is…

Q: Lease liability and right of use asset are accounts used by the lessee in a finance lease. Are the…

A: It refers to the value of the lessee's right to utilize an item under a lease agreement or contract.…

Q: . In a lease that is not classified as a manufacturer's lease, initial direct cost is a. added to…

A: Solution: As per accounting standards related to lease, Initial direct costs are often incurred in…

Q: The basic difference between a direct-financing lease and a sales-type lease is the recognition of…

A: A direct financing lease is a type of lease under which the lessor purchases the asset and lease it…

Q: n a finance lease. Are the components used in computing the right of use asset all similar to the…

A: Right Of Use Asset: It refers to value of right to use an asset by the lessee under a lease…

Q: For a lessor, the leased asset appears on the balance sheet and continues to be depreciatedwhen the…

A: Lease: Leases are agreements in which the proprietor of the asset permits another party to utilize…

Q: Under a direct financing lease, the excess of aggregate rentals over the cost of the leased property…

A: Lease refers to the contract that outline the terms where one party of the contract agrees to rent…

Q: Which of the following is a required financial statement presentation by a lessee for both capital…

A: Lease classify as sale type lease means it is a financial lease where lessor has given right to use…

Q: Lease liability and right of use asset are accounts used by the lessee in a finance lease. Are the…

A: As per AASB 16 Leases defines a lease as “a contract, or part of a contract, that conveys the right…

Q: When should a lessor recognize as income a nonrefundable lease bonus paid by a lessee on signing an…

A: Solution: The receipt of the lease bonus creates deferred revenue whether refundable or non…

Q: At the beginning of an operating lease, the lessor will record what asset or assets, if any?

A: An operating lease is a contract that allows for the use of an asset but does not convey ownership…

Q: How do the lessee and lessor will agree to modify the terms of a lease before the lease term ends?

A: Lease Agreement: It is a contract between the owner of an asset (lessor) and a tenant (lessee) for…

Q: A lease qualifies as a finance (sales-type) lease. Indicate an account to be used by the lessee, and…

A: Accounting Entry Made by lessee Dr. Right of Use Assets Cr. Lease Liability Accounting…

Q: ease liability measured at lease inception?

A: The lease liability is initially recognised at the commencement day and measured at an amount equal…

Q: A lease agreement whereby the lessor shall recognized gross profit at inception of the lease

A: A lease agreement whereby the lessor shall recognized gross profit at inception of the lease is…

Q: Among the four types of leases: Lessor’s sales-type lease, Lessor’s operating lease Lessee’s…

A: A) Lessor's sales-type lease - Lessor will record the Lease receivable i.e. lease asset on the…

Q: The rent expense of the lessee maybe composed of the following: I. Straight-line amortization…

A: Here discuss about the details of rent expenses which are incurred at the time of inception of lease…

Q: question 1: There are nine itsms list under "quantitive disclosure" for the lease. Why aren't…

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: Which of the following is true regarding IFRS 16? a. Lessors shall recognize assets held under…

A: As per IFRS16, Leases Lessor will account lease as operating lease or finance lease.

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Party recording the
asset on its books

Party recording
interest expense

Seller-lessee

Purchaser-lessor

Seller-lessee

Purchaser-lessor

Seller-lessee

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the leased property. This lease contains a purchase option that is reasonably expected to be exercised. The lessee should record Lease G as: a. neither an asset nor a liability b. an asset but not a liability c. an expense d. an asset and a liability
What is the basic difference between the accounting procedures used by a lessor for a sales-type lease and those used for a direct-financing lease?
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.
Which of the following statements characterizes a sales-type lease? The lessor recognizes only interest revenue over the life of the asset.. The lessor recognizes a dealer profit at lease inception and interest revenue over the lease term. The lessor recognizes a dealer profit at lease inception and interest revenue over the useful life. The lessor recognizes only interest revenue over the lease term.
Which of the following statements characterizes a sales-type lease? A)The lessor recognizes only interest revenue over the life of the asset.. B)The lessor recognizes only interest revenue over the lease term. C)The lessor recognizes a dealer profit at lease inception and interest revenue over the lease term. D)The lessor recognizes a dealer profit at lease inception and interest revenue over the useful life.
On the lessor’s accounting, which of the following situations would prima facie lead to a lease contract being classified as an operating lease? Lease term is for a major part of the asset’s useful life Existence of a bargain purchase option Present value of minimum lease payments is 50% of the fair value of the leased asset Transfer of ownership by end of lease term
Which of the following statements is correct in accordance with AASB 16 Leases? Group of answer choices A lease contract, or part of a lease contract, conveys the right to transfer ownership of an asset for a period of time in exchange for consideration. Payments that are made by a lessee at commencement date are included in the initial amount recognised for the lease liability. Payment for executory costs reimbursed by the lessee after being paid by the lessor on behalf of the lessee are included in the calculation of lease payments. Variable lease payments may be increased or decreased during the lease term because of changes in facts and circumstances occurring after the asset is made available to the lessee to use, other than the passage of time.
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
The lessee normally measures the lease liability to be recorded as the: Select one: a. Present value of the minimum lease payments. b. The future value of the minimum lease payments c. The fair market value of the leased asset. d. The sum of the cash payments over the term of the lease.
If a lease term is more than 80% of the asset’s life and the leased property is transferred from the lessor to the lessee, then the lease must be capitalized and disclosed on a firm’s balance sheet. Is the preceding statement true or false? False or True
For a lessor, the leased asset appears on the balance sheet and continues to be depreciatedwhen the lease is classifi ed as:A . a sales-type lease.B . an operating lease.C . a fi nancing lease.
Which of the following statements is correct related to lease? a. The leased asset is depreciated over the asset's useful life or lease term whichever is higher. b. The leased asset is depreciated over the asset's useful life. c. The leased asset is recorded using the higher amount between fair value of the asset and present value of the minimum lease payments. d. Under IFRS 16 a lease is defined as ‘a contract that conveys the right to use an asset for a period of time in exchange for consideration'.