Initial direct costs incurred by the lessor in an operating lease should be A. expensed in the year of incurrence by including them in the cost of goods sold or by treating them as a selling expense. B. deferred and recognized as reduction in the interest rate implicit in the lease. C. capitalized as part of asset cost and depreciated over the lease term. D. deferred and carried on the statement of financial position until the end of the lease term.

Initial direct costs incurred by the lessor in an operating lease should be A. expensed in the year of incurrence by including them in the cost of goods sold or by treating them as a selling expense. B. deferred and recognized as reduction in the interest rate implicit in the lease. C. capitalized as part of asset cost and depreciated over the lease term. D. deferred and carried on the statement of financial position until the end of the lease term.

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 5C: Initial Direct Costs Efland Company leases equipment to Orange Company. Efland incurred the...

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Lessor Accounting with Guaranteed Residual Value Use the information for Edom Company in E20-8, except that the residual value was guaranteed by Davis Company (the lessee). Required: 1. Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by Edom. 3. Prepare journal entries for Edom tor the years 2019 and 2020.
Initial Direct Costs Efland Company leases equipment to Orange Company. Efland incurred the following costs associated with the lease: Advertising to find a lessee20,000 Commissions for the salesperson25,000 Negotiating fees to sign the contract10,000 Payment to an existing lessee to terminate its lease early30,000 General overhead associated with the leased asset10,000 Required: 1. Explain what initial direct costs are. 2. Indicate precisely how Efland should account for initial direct costs if this lease is (a) an operating lease, (b) a sales-type lease, and (c) a direct financing lease. 3. Which of the above amounts should Efland consider initial direct costs?
34 Initial direct costs incurred by the lessor in an operating lease should beA. expensed in the year of incurrence by including them in the cost of goods sold or by treating them as a selling expense.B. deferred and recognized as reduction in the interest rate implicit in the lease.C. capitalized as part of asset cost and depreciated over the lease term.D. deferred and carried on the statement of financial position until the end of the lease term.
44. new..recheck The right-of-use asset is increased by lease prepayments made by the lessee and initial direct costs incurred by the lessee. initial direct costs incurred by the lessee only. lease incentives received. prepaid lease payments only.
9.When a company sells property and then leases it back, any gain on the sale should usually be Select one: a. recognized in the current year. b. recognized at the end of the lease. c. deferred and recognized as income over the term of the lease. d. recognized as a prior period adjustment.
41. The basic difference between a direct-financing lease and a sales-type lease is the allocation of initial direct costs by the lessor to periods benefited by the lease arrangements. recognition of the profit on the sale. amount of the depreciation recorded each year by the lessor. manner in which rental receipts are recorded as rental income.
t27 In IFRS 16 par. 74, initial direct costs incurred by a lessor in consummating a manufacturer’s or dealer’s lease areA. charged to unearned income in the first period of the lease term.B. charged to expense in the first period of the lease term.C. deferred and allocated over the lease term in proportion to the recognition of rent revenue.D. deferred and allocated over the lease term on a straight-line basis.
Answer True or False Initial direct costs are immediately recognized as an expense by the lessor when the cost incurred in conjunction with an operating lease. The lessor uses the implicit interest rate in determining the present value of the lease payments Termination penalties are included in the lease payments if the lease term reflects the lessee exercising an option to terminate the lease. In a sale and leaseback transaction that qualifies as a sale under PFRS 16, the seller-lessee recognized only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor
32 The cost of sales recognized at the commencement of the lease term by a manufacturer or dealer is equal toA. carrying amount of the leased asset.B. carrying amount of the leased asset minus the unguaranteed residual value in absolute amount.C. carrying amount of the leased asset minus the present value of the unguaranteed residual value.D. carrying amount of the leased asset minus the present value of the guaranteed residual value.
t24 In a lease that is recorded as a manufacturer’s or dealer’s lease by the lessor, interest revenue should beA. recognized in full as revenue at the lease’s inception.B. recognized over the period of the lease using the straight-line method C. recognized over the period of the lease using the interest method.D. not be recognized in the accounts.
1. Which statement is incorrect about initial direct costs? a. Initial direct costs incurred by the lessee in finance lase are added to the amount recognized as an asset and to the finance lease liability. b. In a direct financing lease, initial direct costs are added to the net investment in the lease. c. In a sales type lease, initial direct costs are expensed as component of cost of goods sold. d. For operating leases, initial direct costs are deferred and allocated over the lease term. 2. If the lessor and lessee use different interest rates to account for a finance lease, then a. The lessor will use different account titles to record the leasing transactions b. Total expenses and revenues will be equal c. Total expenses and revenues will be different d. The lessee and the lessor cannot use different interest rates 3. In the case of a lease of land and building where title to the land is not transferred, the lease is generally treated as if: a. Both land and building are finance…
1. Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price.Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life.Statement III. Assuming the lessee depreciates the asset under the straight-line method, the pattern of the total expense that the lessee shall recognized with respect to the lease is the same every period. A. Only Statement I and II are incorrect. B. Only Statement II and III are incorrect. C. Only Statement I and III are incorrect. D. All statements are incorrect. E. All statements are correct. 2. Statement I. If the pattern of the repairs cannot be established and the obligation for warranty cannot be reasonably estimated, warranty costs are recorded as expense when…