CHAPTER 15 Leases 877 When the residual value is not guaranteed, the lessor bears any loss that results from the actual residual value of the leased asset being less than the original estimate. The lessor would record (a) any cash received as well as (b) the returned asset at its actual residual value. It then would record a loss or gain if that total differs from the anticipated residual value. Illustration 15–13 summarizes the effect of the residual value of a leased asset for each of the various possibilities regarding the nature of the residual value. We have seen how minimum lease payments are affected by a residual value and by a bargain purchase option. Let’s now consider how maintenance, insurance, taxes, and other costs usually associated with ownership (called executory costs ) affect minimum lease payments. Other Lease Accounting Issues Executory Costs One of the responsibilities of ownership that is transferred to the lessee in a capital lease is the responsibility to pay for maintenance, insurance, taxes, and any other costs usually associated with ownership. These are referred to as executory costs . Lease agreements usually are written in such a way that these costs are borne by the lessee. These expenditures simply are expensed by the lessee as incurred: repair expense, insurance expense, property tax expense, and so on. Let’s return, for example, to Illustration 15–6 on page 863. Now, suppose that a $2,000 per year maintenance agreement was arranged with an outside service for the leased equipment. Sans Serif (the lessee) would expense this fee each year as incurred: PART C ● LO15–9 Is the residual value of a leased asset included in: the Lessor’s the Lessee’s (a) Computation of Lease Payments (b) Minimum Lease Payments (c) Minimum Lease Payments Lessee gets the residual value (by transfer of title or the expected exercise of a bargain purchase option) No No No Lessor gets the residual value (title does not transfer; no bargain purchase option) • Residual value is not guaranteed Yes No No • Residual value is guaranteed by the lessee. Yes Yes Yes • Residual value is guaranteed by a third party guarantor. Yes Yes No (a) The lessor, when computing periodic rental payments, subtracts the present value of the residual value from the amount to be recovered (fair value) to determine the amount that must be recovered from the lessee through the periodic rent payments. (b) The present value of the lessor’s minimum lease payments is the lease receivable and, in a sales-type lease, the sales revenue. (c) The present value of the lessee’s minimum lease payments is the amount to be capitalized as an asset and a liability. Illustration 15–13 Effect of a Residual Value: A Summary
Spiceland_Inter_Accounting8e_Ch15
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