978-1259722660 Chapter 15 Lecture Note Part 2

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PowerPoint Slides

Two PowerPoint presentations of the chapter are available in the Connect

Library:

1. With “Concept Checks” useful for classroom presentation, permitting the

instructor to intersperse in the presentation short exercises students can be

asked to solve individually or in small groups before the solution is

“revealed” by the instructor. {These are available only within Instructor

Resources.}

2. Without the “Concept Checks” so students don’t have the solutions before

being asked to solve individually or in small groups.

3. Accessible PowerPoint Presentations. Accessibility is becoming even

more important in the education marketplace. Students and instructors

with disabilities use many different assistive technologies, and

McGraw-Hill Education is working to increase compatibility and access

that will not only help those with disabilities achieve better learning

outcomes, but also serve the institutions that are teaching these students.

Accessible PowerPoint allows slide content to be read by a screen reader

and provides alternative text descriptions for any image files used that

enrich the learning experience. Accessible PowerPoint is also designed

with high-contrast color palettes and uses texture when possible, instead

of color to denote different aspects of the imagery used within the slide.

Note: The slides are intended to provide comprehensive coverage of the

chapter, but they can be easily edited to allow instructors to change

numbers and content in illustrations or to delete slides pertaining to topics

they choose to omit or deemphasize. (Using your students’ names for

company names in the Concept Checks or Illustrations can be fun.)

Suggestions for Class Activities

1. Spreadsheet Activity

Have students create a functional lease amortization schedule in Excel. Suggest that the

spreadsheet:

1. Include cells for the number of periods, the interest rate, the present value of cash flows,

and the periodic rent. The cells should be “defined” as the respective variables so that

formulas in the schedule that refer to the variable names will pick up the values entered in

the cells.

2. An advanced step would be to have a cell in which the user can: Enter “1” if payments

are at the beginning of the period. Payments are assumed at the end of the period if the

cell is blank. This requires “if-then” statements within the formulas that refer to the cell.

3. The initial balance can be made to calculate the PV if that amount is not provided by the

user in the PV cell and to calculate the payments if the PV is provided by the user in the

PV cell. Thus, if “PV” is blank, the calculation will default to the “Payment.”

Provide students with various variable values to conduct several “what if?” exercises.

2. Google Analysis

Have students, individually or in groups, go to the most recent Target annual report at Target’s

website at www.target.com. Ask them to:

1. Compare the company’s lease commitments, both finance and operating, with those in the

2016 report. Are there any discernible trends? How might they be interpreted?

2. Has the company adopted the provisions of ASC 842?

3. Are any lease transactions reported on the statement of cash flows? If so, how?

3. Professional Skills Development Activities

The following are suggested assignments from the end-of-chapter material that will help your

students develop their communication, research, analysis, and judgment skills.

Communication Skills. Research Case 15–1 and Ethics Case 15–3 are suitable for student

presentation(s). In addition to Communication Cases 15–2 and 15–5, Research Case 15–1

can be adapted to ask students to write a memo to the controller supporting their position.

Questions 11 and 12, Problem 15–7, and Ethics Case 15–3 create good class discussions.

Research Skills. In their professional lives, our graduates will be required to locate and extract

relevant information from available resource material to determine the correct accounting

practice, perhaps identifying the appropriate authoritative literature to support a decision.

Exercises 37 and 28, Research Case 15–1, and IFRS Case 15–7 provide excellent

opportunities to help students develop this skill.

Analysis Skills. The “Broaden Your Perspective” section includes Analysis Cases that direct

students to gather, assemble, organize, process, or interpret date to provide options for

making business and investment decisions. In addition to Analysis Case 15–4, Exercises

15–3, 15–4, and 15–5, as well as Communication Cases 15–2 and 15–5 also provide

opportunities to develop analysis skills.

Judgment Skills. The “Broaden Your Perspective” section includes Judgment Cases that

require students to critically analyze issues to apply concepts learned to business situations

in order to evaluate options for decision making and provide an appropriate conclusion.

Questions 24 and 29, Problems 15–28, 15–29, and 15–30, and Trueblood Case 15–8 also

require students to exercise judgment.

Assignment Chart

Learning Est.

time

Questions Objective(s) Topic

(min.)

15–1 1 Substance over form 5

15–2 1 Interest on leases 5

15–3 2 Leases and installment notes compared 5

15–4 1 Lease classification 5

15–5 1 Lease classification 5

15–6 2 Finance/sales-type lease 5

15–7 3 Finance/sales-type lease 5

15–8 4 Operating lease 5

15–9 4 Operating lease 5

15–10 4 Operating lease 5

15–11 2,3 4 Right-of-use approach 5

15–12 3,4 Front loading 5

15–13 2,3 4 Discount rate 5

15–14 5 Short term lease 5

15–15 6 Uncertain lease payments 5

15–16 6 Purchase option 5

15–17 6 Uncertain lease term 5

15–18 6 Uncertain lease term 5

15–19 6 Reassessment 5

15–20 6 Guaranteed residual value 5

15–21 6 Guaranteed residual value and BPO 5

15–22 7 Nonlease payments 5

15–23 7 Initial direct costs 5

15–24 7 Initial direct costs 5

15–25 8 Disclosures 5

15–26 9 IFRS 5

15–27 9 IFRS 5

15–28 9 Sale-leaseback 5

15–29 A Sale-leaseback 5

Brief Learning Est.

time

Exercises Objective(s) Topic

(min.)

15–1 1 Lease classification 5

15–2 1,2 Lease classification 5

15–3 2 Lessee and lessor; calculate interest;

finance/sales-type lease

15–4

15–5

Finance lease; lessee; balance sheet effects

Finance lease; lessee; income statement effects

15–6 3 Sales-type lease; lessor; income statement

effects

15–7 3 Sales-type lease; lessor; calculate lease

payments

15–8 4 Operating lease 5

15–9 4 Operating lease 5

15–10 5 Short-term lease 5

15–11 6 Uncertain lease term 5

15–12 6 Uncertain lease payments 5

15–13 2,3,6 Purchase option; lessor; sales-type lease 5

15–14 2,3,6 Residual value; sales-type lease 10

15–15 6 Guaranteed residual value 5

15–16 3,7 Lessor’s initial direct costs; sales-type lease 5

15–17 2,7 Nonlease payments 5

Learning Est.

time

Exercises Objective(s) Topic

(min.)

15–1 1 Lease classification 15

15–2 2 Finance lease; calculate lease payments 15

15–3 2 Finance lease; lessee; balance sheet and income

statement effects

15–4 2 Sales-type lease; lessor; balance sheet and

income statement effects

15–5 3 Sales-type lease; lessor; balance sheet and

income statement effects

15–6 2 Finance lease; lessee 25

15–7 2 Sales-type lease with no selling profit; lessor 20

15–8 3 Sales-type lease with selling profit; lessor;

calculate lease payments

15–9 2 Lessor calculation of annual lease payments;

lessee calculation of asset and liability

15–10 2 Lessor calculation of annual lease payments;

lessee calculation of asset and liability

15–11 2,3 Lessee and lessor; sales-type lease with selling

profit

15–12 2 Lessee; finance lease; effect on financial

statements

15–13 4 Lessee; operating lease; effect on financial

statements

15–14 4 Lessor; operating lease; effect on financial

statements

15–15 3 Sales-type lease; lessor; income statement

effects

15–16 4 Lessee; operating lease 25

15–17 4 Lessee and lessor; operating lease 25

15–18 5 Short-term lease 25

15–19 2,6 Lessee; renewal option 20

15–20 2,6 Variable lease payments 15

15–21 2,6 Lessee; variable lease payments 30

15–22 2,6 Lessee; variable lease payments 15

15–23 2,6 Lessee; renewal options 20

15–24 2,6 Calculation of annual lease payments; residual

value

15–25 2,6 Lessor; sales-type lease; residual value; effect on

financial statements

15–26 2,6 Lease concepts; finance/sales-type leases;

guaranteed and unguaranteed residual value

15–27 2,6 Lessee; lessee guaranteed residual value 15

15–28 2,6 Calculation of annual lease payments; purchase

option

15–29 2,6 Finance lease; purchase options; lessee 10

15–30 2,6 Purchase option; lessor; sales-type lease; no

selling profit

15–31 2,7 Nonlease payments; lessor and lessee 20

15–32 2,7 Lessor’s initial direct costs; sales-type lease 25

15–33 3,7 Lessor’s initial direct costs; sales-type lease 25

15–34 4,7 Lessor’s initial direct costs; operating lease 15

15–35 2,3,4,5,

6,7,8

Concepts; terminology 15

15–36 8 FASB codification research; reassessment of

lease terms

15–37 8 FASB codification research 20

15–38 A Sale-leaseback 20

15–39 A Sale-leaseback; operating lease 15

Learning Est.

time

Problems Objective(s) Topic

(min.)

15–1 2 Integrating problem; bonds; note; lease 15

15–2 2 Finance lease 25

15–3 2 Lease amortization schedule 30

15–4 1,2,3 Finance/sales-type lease; lessee and lessor 20

15–5 4 Lessee; operating lease; advance payment;

leasehold improvement

15–6 4 Operating lease; scheduled rent increases 35

15–7 2,6 Lease amortization schedule 45

15–8 2,4,6 Reassessment of lease term 45

15–9 2,6 Lease concepts; sales-type leases;

guaranteed and unguaranteed residual value

15–10 3,6 Sales-type lease; purchase option

reasonably certain to be exercised before

lease term ends; lessor and lessee

15–11 4,6 Change in lease term; operating lease:

lessor

15–12 2,6 Lessee; renewal option 25

15–13 2,6 Lessee and lessor; lessee guaranteed

residual value

15–14 2,3 Lessee and lessor; lessor; sales-type lease

with selling profit; residual value

15–15 2,7 Nonlease payments; lessor and lessee 30

15–16 2,3,4,7 Lessor’s initial direct costs; operating and

sales-type leases

15–17 2,7 Nonlease costs; lessor and lessee 50

15–18 3,6,7 Lessee-guaranteed residual value;

unguaranteed residual value; nonlease

costs; different interest rates for lessor and

lessee

15–19 2,7 Initial direct costs; sales-type lease 35

15–20 3,7 Initial direct costs; sales-type lease with a

selling profit

15–21 2,5,6 Guaranteed residual value; sales-type lease 25

15–22 2,6,7 Unguaranteed residual value; nonlease

payments; sales-type lease

15–23 3,6,7 Purchase option reasonably certain to be

exercised before lease term ends; nonlease

payments; sales-type lease

15–24 2,7 Lessee and lessor; lessee guaranteed

residual value

15–25 4,7 Operating lease; uneven lease payments 40

15–26 4,7 Operating lease; uneven lease payments 40

15–27 2,3,6 Modification of a lease 40

15–28 2,8 Finance lease; lessee; financial statement

effects

15–29 2,8 Sales-type lease; lessor; financial statement

effects

15–30 3,8 Sales-type lease; lessor; financial statement

effects

15–31 A Sale-leaseback 25

 Star Problems

Learning Est.

time

Cases Objective(s) Topic

(min.)

Research Case 15–1 2,8 FASB codification; locate and extract relevant

information and authoritative support for a

financial reporting issue; finance lease; sublease

of a leased asset

Communication Case 15–2 1,2,3,6,7 Classification issues; lessee accounting; group

interaction

Ethics Case 15–3 3 Leasehold improvements 20

Analysis Case 15–4 1,2,3,4 Lease concepts; Walmart 35

Communication Case 15–5 A Where’s the gain? 45

Trueblood Case 15–6 3 Lease 45

IFRS Case 15–7 1,2,4,9 Lease classification; U.S. GAAP 35

Target Case

Air France–KLM Case

2,4

Accounting for leases; Target

IFRS; accounting for leases; Air France–KLM