Exercise 15-23
1. January 1, 2016
Lease receivable (fair value / present value) …………………… 500,000
2. Effective rate of interest revenue:
The initial direct costs increase the net investment: $500,000 + 4,242. The
new effective rate is the discount rate that equates the net investment and the
future lease payments:
$504,242 ÷ ? ** = $184,330
lessor’s lease
3. December 31, 2016
15–62 Intermediate Accounting, 8/e
Exercise 15-24
Requirement 1
Inception of the Lease, January 1, 2016
Lease receivable (fair value)………………………………………. 300,000
Exercise 15-25
List A List B
j_ 1. Effective rate times balance. a. PV of BPO price.
k_ 2. Revenue recognition issues. b. Lessor’s net investment.
15–64 Intermediate Accounting, 8/e
Exercise 15-26
Requirement 1
Present value of periodic lease payments*
($102,771 x 7.49236**) $770,000*
* rounded
Requirement 2
December 31, 2016
Exercise 15-27
When the leaseback is a finance (capital) lease, the gain is recognized over the
useful life of the asset under U.S. GAAP as shown in the previous exercise. But,
under IAS No. 17, the gain is recognized over the lease term as shown below (13
years rather than 15 years).
Present value of periodic lease payments*
January 1, 2016
Cash (given) …………………………………………………………… 770,000
December 31, 2016
Interest expense (11% x [$770,000 – 102,771]) ………………….. 73,395
15–66 Intermediate Accounting, 8/e
Exercise 15-28
Requirement 1
January 1, 2016
Cash (given) ……………………………………………………………. 800,000
Exercise 15-29
When the leaseback is an operating lease, the gain is amortized over the lease term
under U.S. GAAP. But, under IAS No. 17, the gain is recognized immediately:
15–68 Intermediate Accounting, 8/e
Exercise 15-30
Requirement 1
The specific citation that specifies the disclosure requirements pertaining to a seller-
Requirement 2
The financial statements of a seller-lessee should include a description of the terms of
Exercise 15-31
Note:
Because exercise of the option appears at the inception of the lease to be
reasonably assured, payment of the option price ($100,000) is expected to occur
January 1, 2016
Leased land (fair value) …………………………………………….. 400,000
December 31, 2016
Depreciation expense ([$990,358 – 150,000] ÷ 20 years) ……. 42,018
Exercise 15-32
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation for
each of the following items is:
1. Definition of a bargain purchase option:
2. Lessor’s gross investment in a sales-type lease:
3. The disclosures required in the notes to the financial statements for an
4. The additional disclosures necessary in the notes to the financial statements
SUPPLEMENT EXERCISES
Exercise 15-33
Present Value of Lease Payments:
($15,000 x 7.47199*) = $112,080
lease present
Because the lease term is equal to the expected useful life of the asset and the
present value of the lease payments is equal to the asset’s fair value, we can
assume the risks and rewards of ownership are transferred to the lessee, so it’s a
Type A lease.
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
15–72 Intermediate Accounting, 8/e
Exercise 15-33 (continued)
January 1, 2016
Right-of-use equipment (present value calculated above) 112,080
Lease payable (present value calculated above) …. 112,080
March 31, 2016
Interest expense (2% x [$112,080 – 15,000]) …………. 1,942
June 30, 2016
Interest expense (2% x $84,022: from schedule) …….. 1,680
September 30, 2016
Interest expense (2% x $70,702: from schedule) …….. 1,414
December 31, 2016
Interest expense (2% x $57,116: from schedule) …….. 1,142
Exercise 15-34
Present Value of Lease Payments:
($15,000 x 7.47199*) = $112,080
lease present
Because the lease term is equal to the expected useful life of the asset and the
present value of the lease payments is equal to the asset’s fair value, we can
assume the risks and rewards of ownership are transferred to the lessee, so it’s a
Type A lease.
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
112,080
Exercise 15-34 (continued)
January 1, 2016
Lease receivable (present value calculated above) …. 112,080
Inventory of equipment (lessor’s cost) …………… 112,080
Exercise 15-35
Present Value of Lease Payments:
($15,000 x 7.47199*) = $112,080
lease present
January 1, 2016
Right-of-use equipment (present value calculated above) 112,080
March 31, 2016
Interest expense (2% x [$112,080 – 15,000]) …………. 1,942
15–76 Intermediate Accounting, 8/e
Exercise 15-36
Present Value of Lease Payments:
($15,000 x 7.47199*) = $112,080
lease present
January 1, 2016
(Type B lease)
March 31, 2016
Cash (lease payment) ………………………………………. 15,000
Exercise 15-37
Requirement 1
January 1, 2016
Requirement 2
$4,000,000 ÷ 3.16987** = $1,261,881
Exercise 15-37 (concluded)
Requirement 3 December 31, 2016
Interest expense (10% x outstanding balance) ………. 400,000
Requirement 4 December 31, 2018
Interest expense (10% x outstanding balance) ………. 219,005
Exercise 15-38
A lease that has a maximum possible lease term (including options to
terminate or renew that are reasonably certain) of twelve months or less is
considered a “short–term lease.”
January 1, 2016
No entry to record a right-of-use asset and liability
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. b. The 4 year lease term is greater than 75% of the asset’s 5 year life making
2. b. $111,500
3. a. The key point is to first calculate the annual payments required by the lease.
Use the basic present value formula: Annual Payments × Present Value
4. c. The profit on the sale is the difference between the cash selling price and the
book value, $3,520,000 – 2,800,000 = $720,000. The interest is computed as
follows: