Question
In: Accounting
Which of the following is not among the criteria for classifying a lease as a finance...
Which of the following is not among the criteria for classifying a
lease as a finance lease?
- The agreement specifies the ownership of the asset transfers
to the Lesee
- The agreement contains an option to purchase the underlying
asset that the lessee is reasonably certain to exercise
- The lease term is for substantially all of the remaining
economic life the underlying assets
Or
- The present value of the sum of the lease payments and any
residual value guaranteed by the Leisy that isn’t already reflected
in the lease payments equals or exceeds substantially all of the
fair value of the underlying asset
Solutions
Expert Solution
- The agreement specifies the ownership of the asset transfers to the Lesee
These are criteria of a lease
a. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
b. The lease grants the lessee an option to purchase the
underlying asset that the lessee is reasonably certain to
exercise.
c. The lease term is for the major part of the remaining economic
life of the underlying asset. However, if the commencement date
falls at or near the end of the economic life of the underlying
asset, this criterion shall not be used for purposes of classifying
the lease.
d. The present value of the sum of the lease payments and any
residual value guaranteed by the lessee that is not already
reflected in the lease payments equals or exceeds substantially all
of the fair value of the underlying asset.
e. The 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
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1
2
3
4
Lease term (years)
4
7
5
8
Lessor's rate of return
10
%
11...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three independent situations below describes a
finance lease in which annual lease payments are payable at the
beginning of each year. The lessee is aware of the lessor's
implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1,
FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from
the tables provided.)
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1
2
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Lease term (years)
11
21
5
Lessor's rate of return (known by lessee)
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implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1,
FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from
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1
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Lease term (years)
9
20
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