Under ASC 842 If the present value of the lease payments is less than or equal to the fair value of the asset the lessor must classify the lease as a direct financing lease. True False
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Under ASC 842 If the present value of the lease payments is less than or equal to the fair value of the asset the lessor must classify the lease as a direct financing lease.
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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.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?Lease 105 does not contain a purchase option but the present value of the lease payments equals the fair value of the underlying asset. Lease 210 does not transfer ownership to the lessee but the lease term is for the majority of the estimated economic life of the leased asset. How should the lessee classify these leases?
- 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.The situation which would normally lead to a lease being classified as afinance lease include all of the following, except A. The lease transfers ownership of the underlying asset to the lessee at the end of the lease term. B. The lessee has the option to purchase the asset at a price which is expected to be sufficiently higher than the fair value at the date the option becomes exercisable. C. The lease term is for the major part of the economic life of the underlying asset even if title is not transferred. D. The present value of the lease payments amounts to substantially all of the fair value of the underlying asset at the inception of the lease.A lease agreement will qualify as a finance lease if one of these conditionsoccur: A. The lessee returns the leased property to the lessor at the end of the lease term.B. The lease does not have a bargain purchase option.C. The lease term is for major of the economic life of the asset.D. The present value of the minimum lease payment amounts to substantially less than the fair value of the leased asset.
- 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?Which one of the following would normally lead to a lease being classified as an operating lease? a. The lease term is for a period of more than half of the expected economic life of the underlying asset. b. At the inception date of the lease agreement, the present value of the total lease payments is for an amount substantially less than the fair value of the underlying asset. c. The lease is cancellable, and all losses associated with the cancellation will be incurred by the lessee. d. It is reasonably certain at the inception date that the lessee will exercise an option to purchase the underlying asset at the end of the lease term for a price substantially lower than its expected fair value.Which of the following is a criterion for classifying a lease for a lessee as a finance lease? The lease term is for a major part of the asset’s economic life. The lease transfers ownership of the asset to the lessee at the end of the lease term. The present value of the lease payments equals or exceeds substantially the asset’s fair value. All of the above.
- At the inception of a finance lease, the guaranteed residual value should be Included at present value as part of the lease payments Included at undiscounted value as part of the lease payments. Ignored by the lessee in computing the lease payments Included at present value as part of the lease payments only to the extent that it exceeds the expected residual valueWhich of the following statements is correct regarding the accounting for leases? The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease The lessor depreciates the leased asset under a finance lease An entity can never be both a lessor and a lessee of a same leased asset When discounting lease payments both the lessor and the lessee use the interest rate implicit in the lease, unless the lessee cannot determine this rateHow should an entity account for a short-term or low-value lease under PFRS 16? Group of answer choices Recognize an discounted present value of future payments. On a straight-line basis unless the use of the asset allows for a more appropriate treatment. Recognize the expense as it is paid. The same treatment as long-term leases