INTERMEDIATE ACCOUNTING (ACCT 3200B)
10th Edition
ISBN: 9781307660647
Author: SPICELAND
Publisher: MCG/CREATE
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Chapter 15, Problem 15.6DMP
(1)
To determine
Lease
Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.
To state: the classification of lease that management would prefer to avoid income smoothing over time in income statement.
(2)
To determine
To Explain: if objective reporting is more or less difficult under IFRS.
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Part 1: New Lease Accounting – IFRS 16 Leases Effect Analysis.
What are the top three industries most affected by IFRS 16 as measured by the present value of future payments for off-balance-sheet leases to total assets? Which leased assets propel them to the top three? Also, discuss the extent that smaller firms would be affected by IFRS 16.
Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement.
Variable lease payments linked to future use or sales
Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option.
Discuss the effects of the new accounting on the following items and ratios of lessees. Provide reason(s) behind all effects.
EBITDA, operating profit, and profit before tax
Operating cash flow, financing cash flow, and total cash flow
Debt to equity, current ratio, and return on total assets
Part 1: New Lease Accounting –IFRS 16 Leases Effect Analysis.
Identify differences between IFRS 16 and U.S. GAAP new lease accounting (ASC Topic 842). Based on these differences, discuss which one (IFRS or U.S. GAAP) you favor and why?
Discuss three main features of the two transition methods for lessees under ASC 842 and IFRS 16. Which transition method would investors likely prefer? Why? Which transition method may be preferred by companies? Why?
Question 9 of 20
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Current Attempt in Progress
When lessors account for residual values related to leased assets, they
- / 1
O include the unguaranteed residual value in sales revenue.
O reduce the residual value by the executory costs.
O recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an
unguaranteed residual value.
O include the residual value in the receivable measurement because it is assumed the residual value will be realized.
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Chapter 15 Solutions
INTERMEDIATE ACCOUNTING (ACCT 3200B)
Ch. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - Prob. 15.4QCh. 15 - A lessee should classify a lease transaction as a...Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - In accounting for a finance lease/sales-type...Ch. 15 - What is selling profit on a sales-type lease? How...Ch. 15 - At the beginning of an operating lease, the lessee...Ch. 15 - At the beginning of an operating lease, the lessor...Ch. 15 - In accounting for an operating lease, how are the...
Ch. 15 - Briefly describe the conceptual basis for asset...Ch. 15 - In a financing lease, front loading of lease...Ch. 15 - The discount rate influences virtually every...Ch. 15 - A lease that has a lease term (including any...Ch. 15 - A lease might specify that lease payments may be...Ch. 15 - What is a purchase option? How does it affect...Ch. 15 - A six-year lease can be renewed for two additional...Ch. 15 - Culinary Creations leased kitchen equipment under...Ch. 15 - What situations cause us to remeasure a lease...Ch. 15 - Prob. 15.21QCh. 15 - Compare the way a purchase option that is...Ch. 15 - What nonlease costs might be included as part of...Ch. 15 - The lessors initial direct costs often are...Ch. 15 - When are initial direct costs recognized in an...Ch. 15 - Prob. 15.26QCh. 15 - Prob. 15.27QCh. 15 - Prob. 15.28QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.30QCh. 15 - Lease classification LO151 (Note: Brief Exercises...Ch. 15 - Lease classification LO151, LO152 Corinth Co....Ch. 15 - Lessee and lessor; calculate interest;...Ch. 15 - Finance lease; lessee; balance sheet effects ...Ch. 15 - Finance lease; lessee; income statement effects ...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Prob. 15.7BECh. 15 - Operating lease LO154 (Note: Brief Exercises 8...Ch. 15 - Operating lease LO154 At the beginning of its...Ch. 15 - Short-term lease LO155 King Cones leased ice...Ch. 15 - Uncertain lease term LO156 Java Hut leased a...Ch. 15 - Uncertain lease payments LO156 On January 1,...Ch. 15 - Purchase option; lessor; sales-type lease LO152,...Ch. 15 - Residual value; sales-type lease LO152, LO153,...Ch. 15 - Guarantee d residual value LO156 On January 1,...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lease classification LO151 Each of the four...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Prob. 15.37ECh. 15 - Prob. 15.38ECh. 15 - Prob. 15.39ECh. 15 - Lessors initial direct costs; operating and...Ch. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.6DMPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 2CCTC
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- 12 QUESTION 8 A capital lease is considered a ____ agreement. a. negotiable b. noncancelable c. maintenance d. short-term. QUESTION 9 The sale and leaseback is advantageous to the lessee because the lessee _____. a. is never required to pay taxes and insurance b. receives cash from the sale of the asset c. cannot continue using the asset d. receives title to property at the termination of the lease. QUESTION 10 A primary difference between leveraged leases and other financial leases is that ____. a. unleveraged leases are usually tax-motivated b. the lessor in a leveraged lease is invariably the manufacturer of the leased asset c. leveraged leases involve the use of nonrecourse debt d. leveraged leases must be capitalized and shown on the lessee's balance sheetarrow_forwardt34 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 sellingexpense.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.arrow_forwardCh19-1: Is leasing a zero sum game in the sense that any gain to the lessee is a cost to the lessor? If not, how might both parties gain from a lease transaction? In your answer, explain how lessee and the lessor analyze the situation, why they might use different inputs in their analysis, and how those inputs differences could affect the outcomearrow_forward
- Q9 he objective of IAS 17 Leases is to prescribe the appropriate accounting treatment and required disclosures in relation to leases. Which TWO of the following situations would normally lead to a lease being classified as a finance lease? (i) The lease transfers ownership of the asset to the lessee by the end of the lease term. (ii) The lease term is for approximately half of the economic life of the asset. (iii) The lease assets are of a specialised nature such that only the lessee can use them without major modifications being made. (iv) At the inception of the lease, the present value of the minimum lease payments is 60% of what the leased asset would cost to purchase. Select one: a. (ii) and (iii) b. (iii) and (iv) c. (i) and (ii) d. (i) and (iiiarrow_forwardQuestion 6 of 20 View Policies - / 1 O financing lease. O operating lease. O leveraged lease. O operating or financing lease. ||| If a lease transfers control (or ownership) of the underlying asset to the lessee, then the lease is classified by the lessee as a(n):arrow_forwardQuestion 6 In an operating lease the agreement would results in purchasing the asset by the lessee. The answer is True or False Question 7 A lessor's gross income in finance lease is calculated as the sum of the minimum lease payments plus any residual value payable on the lease. The answer is True or false Question 8 An underlying asset not considered an identified asset if the suppliers substitution right not substantive. The answer is True or False Question 9 Lease equipment reduces the risk of obsolescence to the lessee and passes the risk to the lessor. The answer is True or False Question 10 If the lessor is not a manufacturer or dealer, the asset sold under a finance lease will not be included in Inventory. The answer is True or Falsearrow_forward
- D9 An advantage of a cash lease relative to a crop share lease is: The tenant retains more management control Cash leases are always more profitable for the tenant Less cash cost outlay for the tenant The landowner is much less likely to terminate the lease and find a new tenantarrow_forwardQUESTION 13 In a lease contract, a zone of agreement exists when ONPV of Lease is greater than NPV of Buy Maximum Lease payment acceptable to Lessee is lower than Minimum Lease payment acceptable to Lessor Net Advantage to Leasing is positive Maximum Lease payment acceptable to Lessee is higher than the Minimum Lease payment acceptable to Lesson Net Advantage to Leasing is negativearrow_forwardQuestion 10 of 20 View Policiesarrow_forward
- #14 How should the balances of Progress Billings and Construction in Process be shown at reporting dates prior to the completion of a long-term contract? Question 14 options: a Net balance, as income from construction if credit balance, and loss from construction if debit balance b Progress Billings as deferred income, Construction in Progress as a deferred expense c Progress Billings as income, Construction in Process as inventory d Net balance, as a current asset if debit balance, and current liability if credit balancearrow_forwardPart 1: New Lease Accounting – using IFRS 16 Leases Effect Analysis. Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement. - Variable lease payments linked to future use or sales - Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option.arrow_forwardunder reasonably PROBLEM 1: TRUE OR FALSE in optional the lease. exchange for consideration. L A lease that covers only the 1“ floor of a 10-storey building cannot qualify for accounting under PFRS 16 because the lessee does not have the right to obtain substantially all of the economic benefits of the entire building. 4. Lessees apply a single recognition and measurement approach for all leases, with optional exemptions for short-term leases and leases of low-value assets. borrowing t cost znd et (ie, co opropriate) easuremeri eceived les 5. According to PFRS 16, the lessee includes in the lease payments the price of a purchase option that the lessee is reasonably certain to exercise only if that price is bargain. 6. According to PFRS 16, the lessee includes in the lease payments only the amount that the lessee expects to pay on a residual value guarantee. 7. According to PFRS 16, initial direct costs incurred by a lessee are expensed outright at the lease commencement date. 8. The…arrow_forward
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