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Spiceland_Inter_Accounting8e_Ch15

CHAPTER 15 Leases 903 In a sale-leaseback transaction, the owner of an asset sells it and immediately leases it back from the new owner. The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Required: 1. Obtain the relevant authoritative literature on disclosure requirements pertaining to a seller-lessee in a saleleaseback transaction. Use your institution’s Academic Accounting Access to the FASB Accounting Standards Codification ( www.fasb.org ) or through your school library’s subscription to a research database that includes the Codification. What is the specific citation that describes the guidelines for determining the disclosure requirements in the notes to the financial statements? 2. List the disclosure requirements. On January 1, 2016, Cook Textiles leased a building with two acres of land from Peck Development. The lease is for 10 years at which time Cook has an option to purchase the property for $100,000. The building has an estimated life of 20 years with a residual value of $150,000. The lease calls for Cook to assume all costs of ownership and to make annual payments of $200,000 due at the beginning of each year. On January 1, 2016, the estimated value of the land was $400,000. Cook uses the straight-line method of depreciation and pays 10% interest on borrowed money. Peck’s implicit rate is unknown. Required: Prepare Cook Company’s journal entries related to the lease in 2016. Access the FASB Accounting Standards Codification at the FASB website ( www.fasb.org ). Determine the specific citation for accounting for each of the following items: 1. Definition of a bargain purchase option. 2. The calculation of the lessor’s gross investment in a sales-type lease. 3. The disclosures required in the notes to the financial statements for an operating lease. 4. The additional disclosures necessary in the notes to the financial statements if the operating lease has a lease term greater than one year. E 15–30 FASB codification research; sale leaseback ● LO15–10 CODE  E 15–31 Real estate lease; land and building ● LO15–10 E 15–32 FASB codification research ● LO15–1 LO15–4, LO15–7 CODE  CPA and CMA Review Questions The following questions are adapted from a variety of sources including questions developed by the AICPA Board of Examiners and those used in the Kaplan CPA Review Course used to study lease accounting while preparing for the CPA examination. Determine the response that best completes the statements or questions. 1. A company leases the following asset: • Fair value of $200,000. • Useful life of 5 years with no salvage value. • Lease term is 4 years. • Annual lease payment is $30,000 and the lease rate is 11%. • The company’s overall borrowing rate is 9.5%. • The firm can purchase the equipment at the end of the lease period for $45,000. What type of lease is this? a. Operating. b. Capital. c. Financing. d. Long term. 2. On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh’s December 31, 2016, balance sheet, the capital lease liability should be a. $102,500 b. $111,500 c. $112,500 d. $290,000 CPA Exam Questions ● LO15–3 ● LO15–5


Spiceland_Inter_Accounting8e_Ch15
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