one final round acct 328(A+ Guaranteed Answers)
lease correct answers agreement where lessor (owner) of equipment (or other underlying asset)
gives a lessee (renter) the right to use the equipment for a period of Time for consideration
(payment)
finance lease correct answers If at least one of the lease classification criteria ( ownership
transfer, purchase option, lease term length, pv of lease payments, no alternative use ) is met, the
lease is economically similar to a finance acquisition and is classifed as a
operating lease correct answers if no criteria is met the lease is classified as a
ownership transfer
purchase option
lease term length
pv of lease payments
no alternative use correct answers lease classification criteria
ownership transfer lease classification criteria correct answers transfer of legal ownership from
the lessor to the lessee at the end of the lease term
ownership of transfer correct answers a 5 year lease arrangement for a wehicle allows for the
lessee to automatically become owner of the vehicle at the end of the lease term what example of
lease classification criteria is this
purchase option lease classification criteria correct answers option to purchase the underlying
asset that the lessee is reasonably certain to exercise
significant economic incentive exists
purchase option correct answers for example : purchase option is significantly LESS than
projected fair value or underlying asset is customized for the needs of the lessee os an example
of what lease classification criteria
lease term length lease classification criteria correct answers Is for the MAJOR PART of the
remaining economic life of the underlying asset
optional threshold : major part of lease term >- 75% of remaining economic life
include renewal or termination options if it is reasonably certain that the lessee will exercise
them
, PV of lease payments lease classification criteria correct answers are substantially the same as
the fair value of the underlying asset
lease payments include 100% of guaranteed residual value
interest rate is the lessors implicit rate, otherwise use lessee incremental borrowing rate
optional threshold : consider substantially the same as >- 90% fair value
no alternative use lease classification criteria correct answers underlying asset is of such a
specialized nature that it is expected to have no alternative use to the lessor at the end of the lease
term
contractual restriction : lessor is legally unable to redirect the asset use
practical restriction: not economically feasible to make modifications necessary to use the asset
for other purposes
contractual restrictions correct answers lessor is legally unable to redirect the assets use
practical restrictions correct answers not economically feasible to make modifications necessary
to use the asset for other purposes
ownership of transfer
the automatic transfer of ownership of the underlying asset from the lessor to the lessee indicates
that the transfer of ownership criterion is met correct answers lessee inc signs a lease to rent
equipment for a 10 year period from lessor inc. at the end of the 10 year lease term the legal lode
of the equipment automatically transfers from the lessor to the lessee
purchase option
the discount on the option to purchase at year end makes It reasonably certain that the lessee will
exercise the purchase option at lease end correct answers lessee inc sighs a lease contract to rent
construction equipment for 5 years, the lease includes an option for the lessee to purchase the
equipment at the end of the lease for 20% below fair value which the lessee would be reasonably
certain to exercise
lease term length
there is an economic incentive to renew the lease, so the lease term is considered to be 20 years
because the lease term is 100% of the buildings estimated life, the lease term is a MAJOR PART
of the assets economic life correct answers lessee inc signs a lease contract for an office building
for 10 years the contract includes an option for a 10 year renewal, with rents determined by
market prices at the time of renewal, due to the amount invested in leasehold improvements, the
lessee expects to renew the lease.the estimated useful life od the office building is 20 yrs
lease correct answers agreement where lessor (owner) of equipment (or other underlying asset)
gives a lessee (renter) the right to use the equipment for a period of Time for consideration
(payment)
finance lease correct answers If at least one of the lease classification criteria ( ownership
transfer, purchase option, lease term length, pv of lease payments, no alternative use ) is met, the
lease is economically similar to a finance acquisition and is classifed as a
operating lease correct answers if no criteria is met the lease is classified as a
ownership transfer
purchase option
lease term length
pv of lease payments
no alternative use correct answers lease classification criteria
ownership transfer lease classification criteria correct answers transfer of legal ownership from
the lessor to the lessee at the end of the lease term
ownership of transfer correct answers a 5 year lease arrangement for a wehicle allows for the
lessee to automatically become owner of the vehicle at the end of the lease term what example of
lease classification criteria is this
purchase option lease classification criteria correct answers option to purchase the underlying
asset that the lessee is reasonably certain to exercise
significant economic incentive exists
purchase option correct answers for example : purchase option is significantly LESS than
projected fair value or underlying asset is customized for the needs of the lessee os an example
of what lease classification criteria
lease term length lease classification criteria correct answers Is for the MAJOR PART of the
remaining economic life of the underlying asset
optional threshold : major part of lease term >- 75% of remaining economic life
include renewal or termination options if it is reasonably certain that the lessee will exercise
them
, PV of lease payments lease classification criteria correct answers are substantially the same as
the fair value of the underlying asset
lease payments include 100% of guaranteed residual value
interest rate is the lessors implicit rate, otherwise use lessee incremental borrowing rate
optional threshold : consider substantially the same as >- 90% fair value
no alternative use lease classification criteria correct answers underlying asset is of such a
specialized nature that it is expected to have no alternative use to the lessor at the end of the lease
term
contractual restriction : lessor is legally unable to redirect the asset use
practical restriction: not economically feasible to make modifications necessary to use the asset
for other purposes
contractual restrictions correct answers lessor is legally unable to redirect the assets use
practical restrictions correct answers not economically feasible to make modifications necessary
to use the asset for other purposes
ownership of transfer
the automatic transfer of ownership of the underlying asset from the lessor to the lessee indicates
that the transfer of ownership criterion is met correct answers lessee inc signs a lease to rent
equipment for a 10 year period from lessor inc. at the end of the 10 year lease term the legal lode
of the equipment automatically transfers from the lessor to the lessee
purchase option
the discount on the option to purchase at year end makes It reasonably certain that the lessee will
exercise the purchase option at lease end correct answers lessee inc sighs a lease contract to rent
construction equipment for 5 years, the lease includes an option for the lessee to purchase the
equipment at the end of the lease for 20% below fair value which the lessee would be reasonably
certain to exercise
lease term length
there is an economic incentive to renew the lease, so the lease term is considered to be 20 years
because the lease term is 100% of the buildings estimated life, the lease term is a MAJOR PART
of the assets economic life correct answers lessee inc signs a lease contract for an office building
for 10 years the contract includes an option for a 10 year renewal, with rents determined by
market prices at the time of renewal, due to the amount invested in leasehold improvements, the
lessee expects to renew the lease.the estimated useful life od the office building is 20 yrs
