Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Question
Chapter 15, Problem 15.37E
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 Match: several terms and phrases associated with leases from List B to List A.
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Discuss the financial statement disclosure requirements for all leases entered into by the lessor.
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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
Assume that on December 31, 2019, Sage Hill Aerospace signs a 8-year, non-cancelable lease agreement to lease a hanger from Aero
Field Management Company. The following information pertains to this lease agreement:
The agreement requires equal rental payments of $161,234 beginning on December 31, 2019.
The fair value of the building on December 31, 2019 is $1,092,423.
The building has an estimated economic life of 10 years, a guaranteed residual value of $49,600, and an expected residual
value of $34,500. Sage Hill depreciates similar buildings on the straight-line method.
The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. Sage Hill's incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Sage Hill.
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4.
Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Chapter 15 Solutions
Intermediate Accounting, 10 Ed
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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Similar questions
- Part 1: New Lease Accounting – IFRS 16 Leases Effect Analysis. Q: Discuss the effects of the new accounting on the following items and ratios of lessees. Provide reason(s) behind all effects, in the following: 1. EBITDA, operating profit, and profit before tax 2. Operating cash flow, financing cash flow, and total cash flow 3. Debt to equity, current ratio, and return on total assetsarrow_forwardMatch the words with the term. Question 4 options: one who pays to use an asset agreed commitment purchase cancelable upon notice one who lends an asset 1. lessee 2. sale and leaseback 3. financial lease 4. operating lease 5. lessorarrow_forwardKnowleage Check UT f the option is reasonably certain to be exercised, how does the inclusion of a provision that gives the lessee the option to purchase the lease asset during the ease term at a specified exercise price impact that accounting for that lease? Note: Select all that apply. Check All That Apply The lessor must classify the lease as a sales-type lease. The lessee has the option of classifying the lease as an operating lease. The lease term is assumed to end on the date that the option is expected to be exercised. In the present value calculations, the lessor adds the present value of the exercise price to the present value of the periodic lease payments to determine the amount recorded as the lease receivable.arrow_forward
- question 1: There are nine itsms list under "quantitive disclosure" for the lease. Why aren't short-term lease cost and variable lease cost shown? question 2 : What is the amount cintractual obligations and options that the lessee is reasonably certain to excercise for Operating lease? financing lease?arrow_forwardUnder operating lease: Select one: a. Nome of the options O b. lessee report assets on balance sheet c. Lessor recognized rent expense d. lessee recognize rent revenuearrow_forwardDefine each of the following terms: a. Lessee; lessor b. Operating lease; financial lease; sale-and-leaseback; combination lease; synthetic lease; SPE c. Offbalance sheet financing; capitalizing d. FASB Statement 13; ASU 2016-02 e. Guideline lease f. Residual value g. Lessees analysis; lessors analysis h. Net advantage to leasing (NAL) i. Alternative minimum tax (AMT)arrow_forward
- See attached picture 1. Duscuss the nature of this lease in relation to the lessor and compute the amount of each of the following items: A. Lease receivable at inception of the lease B. Sales Price C. Cost of salesarrow_forwardOwefix a. compute the amount of lease receiveable for the leaseb. discusd the bethre of the leasec. prepara an amoritization table for the lessee and lessorarrow_forwardA lease agreement whereby the lessee recognized rent expense which is always equal to the rent income recognized by the lessor at a given period of time. Group of answer choices Terminating lease Operating lease Finance lease Sale type leasearrow_forward
- When a lease qualifies as a finance lease, what amount is initially recorded as the cost of the right-of-use asset? A) The present value of the lease payments B) The sum of the gross (undiscounted) lease payments. O A O B « Previous Next Not saved Submit Quizarrow_forwardQ9 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_forward36. Which of the following would be included in the Lease Receivable account?I. Guaranteed residual value.II. Unguaranteed residual value.III. Executory costsIV. Rental payments. II, III, and IV. I and III only. I and II only. I, II, and IV.arrow_forward
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