Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134101446
Author: Berk, Jonathan; DeMarzo, Peter
Publisher: PEARSON
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Question
Chapter 25.2, Problem 1CC
Summary Introduction
To determine: The difference between the accounting treatment of operating and capital leases and aspect of this accounting treatment will change in 2019.
Introduction: Lease is a contract between the lessee and lessor for the uses of an asset. Lessee agrees to pay specific amount as per contract to the lessor for the uses for lessor asset.
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In 2019, IFRS 16 changed the way leases were treated in the financial statements. Discuss how IFRS 16 treats financial and operating leases in the financial statements. In what way does this impact the decision between debt financing and leasing?
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Chapter 25 Solutions
Corporate Finance, Student Value Edition (4th Edition)
Ch. 25.1 - In a perfect capital market, how is the amount of...Ch. 25.1 - Prob. 2CCCh. 25.2 - Prob. 1CCCh. 25.2 - Is it possible for a lease to be treated as an...Ch. 25.3 - Why is it inappropriate to compare leasing to...Ch. 25.3 - Prob. 2CCCh. 25.3 - Prob. 3CCCh. 25.4 - Prob. 1CCCh. 25.4 - Prob. 2CCCh. 25 - Suppose an H1200 supercomputer has a cost of...
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- Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false? If the lease term is one year or longer, a liability must be recognized. If the lease term is less than one year, an asset must be recognized. The new lease accounting rules will result in more assets and liabilities being recognized on the balance sheet. Leasing will likely remain popular under the new lease accounting rules because leases do not require a large initial outlay of cash.arrow_forwardUnder the pre-2019 accounting standards, how are operating leases reported in the lessee's balance sheet? Select one: A. As an asset that is depreciated, similar to the company's other assets. B. As either a short-term or long-term liability, depending on the length of the lease C. At the present value of the future minimum lease payments. D. Operating leases are not disclosed in the lessee's balance sheet or annual report. E. None of the abovearrow_forward1. What amount should be reported as lease liability on December 31,2020? 2. What is the initial recognition of the right of use asset?arrow_forward
- Show the solution in good accounting form How much is the contract revenue to date in the year 2019??arrow_forwardPrior to 2019, lessees did not include the right-of-use asset and the lease liability for operating leases on their balance sheets. Both FASB and IASB wrote new standards to require that lessees nearly always report an asset and liability on their balance sheets when they engage in a lease transaction. This accounting results in which of the following? Group of answer choices a more reliable estimation of the lease's value a better determination on whether the lessor held the risks and rewards of the leased asset's ownership a more faithful representation of the rights and obligations arising from leases All of the abovearrow_forwardHow much is the contract revenue to date in the year 2019? (In a good accounting form)arrow_forward
- Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized on December 31, 2020?arrow_forward1. How much is to be reported in the statement of financial position as lease liability for the year ended December 31, 2021? 2.What is the interest expense for the calendar year 2022? (round off answer to the nearest WHOLE NUMBER)arrow_forwardHow much should be reclassified to Retained Earnings as a result of derecognizing the investment in 2019?arrow_forward
- Required: How much is to be reported in the statement of financial position as lease liability for the year ended December 31, 2021?* What is the interest expense for the calendar year 2022? (round off answer to the nearest WHOLE NUMBER) How much depreciation expense is to be recorded for the year ended 2021? (present answer with 2 DECIMAL PLACES)arrow_forward1. What amount should be reported as lease liability on December 31, 2021? 2. What is the interest expense for 2022?arrow_forwardREQUIRED: In the December 31, 2021 statement of financial position, how much should be reported as current liabilities?arrow_forward
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