1、Chapter 21-1Chapter 21-2Intermediate Accounting13th EditionKieso,Weygandt,and Warfield Chapter 21-31.Explain the nature,economic substance,and advantages of lease transactions.2.Describe the accounting criteria and procedures for capitalizing leases by the lessee.3.Contrast the operating and capital
2、ization methods of recording leases.4.Identify the classifications of leases for the lessor.5.Describe the lessors accounting for direct-financing leases.6.Identify special features of lease arrangements that cause unique accounting problems.7.Describe the effect of residual values,guaranteed and un
3、guaranteed,on lease accounting.8.Describe the lessors accounting for sales-type leases.9.List the disclosure requirements for leases.Chapter 21-4Chapter 21-5Largest group of leased equipment involves:Information technologyTransportation(trucks,aircraft,rail)ConstructionAgricultureLO 1 Explain the na
4、ture,economic substance,and advantages of lease transactions.A lease is a contractual agreement between a lessor and a lessee,that gives the lessee the right to use specific property,owned by the lessor,for a specified period of time.Chapter 21-6Three general categories:Banks.Captive leasing compani
5、es.Independents.LO 1 Explain the nature,economic substance,and advantages of lease transactions.Who Are the Players?Chapter 21-71.100%Financing at Fixed Rates.2.Protection Against Obsolescence.3.Flexibility.4.Less Costly Financing.5.Tax Advantages.6.Off-Balance-Sheet Financing.LO 1 Explain the natur
6、e,economic substance,and advantages of lease transactions.Advantages of LeasingChapter 21-8Capitalize a lease that transfers substantially all of the benefits and risks of property ownership,provided the lease is noncancelable.Leases that do not transfer substantially all the benefits and risks of o
7、wnership are operating leases.LO 1 Explain the nature,economic substance,and advantages of lease transactions.Conceptual Nature of a LeaseChapter 21-9LO 1 Explain the nature,economic substance,and advantages of lease transactions.Chapter 21-10If the lessee capitalizes a lease,the lessee records an a
8、sset and a liability generally equal to the present value of the rental payments.Records depreciation on the leased asset.Treats the lease payments as consisting of interest and principal.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Typical Journal Entri
9、es for Capitalized LeaseChapter 21-11To record a lease as a capital lease,the lease must be noncancelable.One or more of four criteria must be met:1.Transfers ownership to the lessee.2.Contains a bargain-purchase option.3.Lease term is equal to or greater than 75 percent of the estimated economic li
10、fe of the leased property.4.The present value of the minimum lease payments(excluding executory costs)equals or exceeds 90 percent of the fair value of the leased property.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Chapter 21-12LO 2 Describe the accoun
11、ting criteria and procedures for capitalizing leases by the lessee.Lease AgreementLeases that DO NOT meet any of the four criteria are accounted for as Operating Leases.Chapter 21-13Capitalization CriteriaLO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Tran
12、sfer of Ownership TestNot controversial and easily implemented.Bargain-Purchase Option TestAt the inception of the lease,the difference between the option price and the expected fair market value must be large enough to make exercise of the option reasonably assured.Chapter 21-14Capitalization Crite
13、riaLO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Economic Life Test(75%Test)Lease term is generally considered to be the fixed,noncancelable term of the lease.Bargain-renewal option can extend this period.At the inception of the lease,the difference betwe
14、en the renewal rental and the expected fair rental must be great enough to make exercise of the option to renew reasonably assured.Chapter 21-15Recovery of Investment Test(90%Test)LO 2Minimum Lease Payments:lMinimum rental paymentlGuaranteed residual valuelPenalty for failure to renewlBargain-purcha
15、se optionExecutory Costs:lInsurancelMaintenancelTaxesExclude from PV of Minimum Lease Payment CalculationCapitalization CriteriaChapter 21-16Discount RateLessee computes the present value of the minimum lease payments using its incremental borrowing rate,with one exception.If the lessee knows the im
16、plicit interest rate computed by the lessor and it is less than the lessees incremental borrowing rate,then lessee must use the lessors rate.Recovery of Investment Test(90%Test)Capitalization CriteriaLO 2Chapter 21-17Asset and Liability Recorded at the lower of:1.present value of the minimum lease p
17、ayments(excluding executory costs)or2.fair-market value of the leased asset.Asset and Liability Accounted for DifferentlyLO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Chapter 21-18LO 2 Describe the accounting criteria and procedures for capitalizing lease
18、s by the lessee.Depreciation PeriodIf lease transfers ownership,depreciate asset over the economic life of the asset.If lease does not transfer ownership,depreciate over the term of the lease.Asset and Liability Accounted for DifferentlyChapter 21-19LO 2 Describe the accounting criteria and procedur
19、es for capitalizing leases by the lessee.Effective-Interest MethodThe effective-interest method is used to allocate each lease payment between principal and interest.Asset and Liability Accounted for DifferentlyDepreciation ConceptDepreciation and the discharge of the obligation are independent acco
20、unting processes.Chapter 21-20E21-1(Capital Lease with Unguaranteed Residual Value):On January 1,2011,Adams Corporation signed a 5-year noncancelable lease for a machine.The terms of the lease called for Adams to make annual payments of$9,968 at the beginning of each year,starting January 1,2011.The
21、 machine has an estimated useful life of 6 years and a$5,000 unguaranteed residual value.Adams uses the straight-line method of depreciation for all of its plant assets.Adamss incremental borrowing rate is 10%,and the Lessors implicit rate is unknown.LO 2Instructions(a)What type of lease is this?Exp
22、lain.(b)Compute the present value of the minimum lease payments.(c)Prepare all necessary journal entries for Adams for this lease through January 1,2012.Chapter 21-21E21-1:What type of lease is this?Explain.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Le
23、ase term 5 yrs.Economic life6 yrs.YES83.3%FMV of leased property is unknown.Capital Lease,#3Chapter 21-22E21-1:Compute present value of the minimum lease payments.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Payment$9,968Present value factor(i=10%,n=5)4.
24、16986PV of minimum lease payments$41,565 Leased Machine Under Capital Leases41,565Lease Liability 41,565Lease Liability 9,968Cash9,968Chapter 21-23E21-1:Lease Amortization ScheduleLO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Chapter 21-24E21-1:Journal en
25、tries for Adams through Jan.1,2012.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Depreciation Expense8,313Accumulated DepreciationCapital Leases 8,313($41,565 5=$8,313)Interest Expense3,160Interest Payable 3,160($41,565$9,968)X.10Chapter 21-25E21-1:Journa
26、l entries for Adams through Jan.1,2012.LO 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.Lease Liability6,808Interest Payable3,160Cash9,968Chapter 21-26LO 3 Contrast the operating and capitalization methods of recording leases.Operating MethodThe lessee assig
27、ns rent to the periods benefiting from the use of the asset and ignores,in the accounting,any commitments to make future payments.Illustration:Assume Adams accounts for it as an operating lease.Adams records this payment on January 1,2011,as follows.Rent Expense 9,968Cash 9,968Chapter 21-27E21-1:Com
28、parison of Capital Lease with Operating LeaseLO 3 Contrast the operating and capitalization methods of recording leases.Chapter 21-281.Interest Revenue.2.Tax Incentives.3.High Residual Value.Benefits to the LessorLO 4 Identify the classifications of leases for the lessor.Chapter 21-29A lessor determ
29、ines the amount of the rental,based on the rate of return needed to justify leasing the asset.If a residual value is involved(whether guaranteed or not),the company would not have to recover as much from the lease paymentsEconomics of LeasingLO 4 Identify the classifications of leases for the lessor
30、.Chapter 21-30E21-10(Computation of Rental):Fieval Leasing Company signs an agreement on January 1,2010,to lease equipment to Reid Company.The following information relates to this agreement.1.The term of the noncancelable lease is 6 years with no renewal option.The equipment has an estimated econom
31、ic life of 6 years.2.The cost of the asset to the lessor is$343,000.The fair value of the asset at January 1,2010,is$343,000.3.The asset will revert to the lessor at the end of the lease term at which time the asset is expected to have a residual value of$61,071,none of which is guaranteed.4.The agr
32、eement requires annual rental payments,beg.Jan.1,2010.5.Collectibility of the lease payments is reasonably predictable.There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.LO 4 Identify the classifications of leases for the lessor.Chapter 21-31LO 4 Id
33、entify the classifications of leases for the lessor.E21-10(Computation of Rental):Assuming the lessor desires a 10%rate of return on its investment,calculate the amount of the annual rental payment required.x-Chapter 21-32a.Operating leases.b.Direct-financing leases.c.Sales-type leases.Classificatio
34、n of Leases by the LessorLO 4 Identify the classifications of leases for the lessor.Chapter 21-33Classification of Leases by the LessorLO 4 Identify the classifications of leases for the lessor.A sales-type lease involves a manufacturers or dealers profit,and a direct-financing lease does not.Chapte
35、r 21-34Classification of Leases by the LessorLO 4 Identify the classifications of leases for the lessor.A lessor may classify a lease as an operating lease but the lessee may classify the same lease as a capital lease.Chapter 21-35In substance the financing of an asset purchase by the lessee.Direct-
36、Financing Method(Lessor)LO 5 Describe the lessors accounting for direct-financing leases.Chapter 21-36E21-10:Prepare an amortization schedule that would be suitable for the lessor.LO 5 Describe the lessors accounting for direct-financing leases.Chapter 21-37E21-10:Prepare all of the journal entries
37、for the lessor for 2010 and 2011.LO 5 Describe the lessors accounting for direct-financing leases.1/1/10 Lease Receivable343,000Equipment343,0001/1/10 Cash64,400Lease Receivable64,40012/31/10 Interest Receivable 27,860Interest Revenue27,860Chapter 21-38E21-10:Prepare all of the journal entries for t
38、he lessor for 2010 and 2011.LO 5 Describe the lessors accounting for direct-financing leases.1/1/11 Cash64,400Lease Receivable36,540Interest Receivable 27,86012/31/11 Interest Receivable 24,206Interest Revenue24,206Chapter 21-39Records each rental receipt as rental revenue.Depreciates the leased ass
39、et in the normal manner.Operating Method(Lessor)LO 5 Describe the lessors accounting for direct-financing leases.Chapter 21-40Illustration:Assume Fieval accounts for the lease as an operating lease.It records the cash rental receipt as follows:Operating Method(Lessor)LO 5 Describe the lessors accoun
40、ting for direct-financing leases.Cash64,400Rental Revenue64,400Depreciation is recorded as follows:Depreciation Expense57,167Accumulated Depreciation57,167Chapter 21-411.Residual values.2.Sales-type leases(lessor).3.Bargain-purchase options.4.Initial direct costs.5.Current versus noncurrent classifi
41、cation.6.Disclosure.LO 6 Identify special features of lease arrangements that cause unique accounting problems.Chapter 21-42Meaning of Residual Value-Estimated fair value of the leased asset at the end of the lease term.Guaranteed Residual Value Lessee agrees to make up any deficiency below a stated
42、 amount that the lessor realizes in residual value at the end of the lease term.Residual ValuesLO 7 Describe the effect of residual values,guaranteed and unguaranteed,on lease accounting.Chapter 21-43Lessee Accounting for Residual ValueThe accounting consequence is that the minimum lease payments,in
43、clude the guaranteed residual value but excludes the unguaranteed residual value.Residual ValuesLO 7 Describe the effect of residual values,guaranteed and unguaranteed,on lease accounting.Chapter 21-44Illustration(Guaranteed Residual Value Lessee Accounting):Caterpillar Financial Services Corp.(a su
44、bsidiary of Caterpillar)and Sterling Construction Corp.sign a lease agreement dated January 1,2011,that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1,2011.The terms and provisions of the lease agreement,and other pertinent data,are as follows.The term of the lease
45、 is five years.The lease agreement is noncancelable,requiring equal rental payments at the beginning of each year(annuity due basis).The loader has a fair value at the inception of the lease of$100,000,an estimated economic life of five years,and no residual value.LO 7 Describe the effect of residua
46、l values,guaranteed and unguaranteed,on lease accounting.Chapter 21-45Illustration(Guaranteed Residual Value Lessee Accounting):Sterling pays all of the executory costs directly to third parties except for the property taxes of$2,000 per year,which is included as part of its annual payments to Cater
47、pillar.The lease contains no renewal options.The loader reverts to Caterpillar at the termination of the lease.Sterlings incremental borrowing rate is 11 percent per year.Sterling depreciates on a straight-line basis.Caterpillar sets the annual rental to earn a rate of return on its investment of 10
48、 percent per year;Sterling knows this fact.Caterpillar estimates a residual value of$5,000 a the end of the lease.LO 7 Describe the effect of residual values,guaranteed and unguaranteed,on lease accounting.Chapter 21-46Illustration(Guaranteed Residual Value Lessee Accounting):Caterpillar would compu
49、te the amount of the lease payments as follows:LO 7 Describe the effect of residual values,guaranteed and unguaranteed,on lease accounting.NOTE:For the Lessee,the minimum lease payment includes the guaranteed residual value but excludes the unguaranteed residual value.Chapter 21-47Illustration(Guara
50、nteed Residual Value Lessee Accounting):Computation of Lessees capitalized amountLO 7 Describe the effect of residual values,guaranteed and unguaranteed,on lease accounting.Chapter 21-48Illustration(Guaranteed Residual Value Lessee Accounting):Computation of Lease Amortization ScheduleLO 7Chapter 21
