926 SECTION 3 Financial Instruments and Liabilities Jan. 1, 2016 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 (concluded) Sans Serif (Lessee) Right-of-use asset 316,987 Lease payable 316,987 Interest expense 31,699 24,869 17,355 9,901 Lease payable 68,301 75,131 82,645 90,909 Cash 100,000 100,000 100,000 100,000 Amortization expensew 68,301 75,131 82,645 90,909 Right-of-use asset 68,301 75,131 82,645 90,909 First LeaseCorp (Lessor) No entry to record receivable or to derecognize asset Cash 100,000 100,000 100,000 100,000 Deferred revenuet 100,000 100,000 100,000 100,000 Deferred revenuet 100,000 100,000 100,000 100,000 Lease revenue 100,000 100,000 100,000 100,000 Depreciation expense ($479,079 / 6)C 79,846 79,846 79,846 79,846 Accumulated depreciation 79,846 79,846 79,846 79,849 tplug to cause the total lease expense to equal the straight-line amount: $100,000 minus interest Calso in 2020 and 2021 Here’s a comparison of the Lessee’s expenses depending on whether it’s a Type A lease or a Type B lease: Short-Term Leases—A Short-Cut Method It’s not unusual to simplify accounting for situations in which doing so has no material effect on the financial statements. You might recognize this as the concept of “materiality.” One such situation that permits a simpler application is a short-term lease. A lease is considered a “short-term lease” if it has a maximum possible lease term (including any options to renew or extend) of twelve months or less and does not contain an option for the lessee to purchase the asset. For a short-term lease, the lessee has a lease-by-lease option to choose a short-cut approach. The short-cut approach permits the lessee to choose not to record the lease transaction at the beginning of the lease term. Instead, the lessee can simply record lease payments as rent expense over the lease term. Yes, this is the approach used under current GAAP for operating leases. Type A Lease Financing Approach Interest Expense Amortization Expense Total Expense 2016 31,699 79,247 110,946 2017 24,869 79,247 104,116 2018 17,355 79,247 96,602 2019 9,091 79,247 88,338 83,014 316,987* 400,000* Type B Lease Straight-Line Approach Interest Expense Amortization Expense Total Expense 31,699 68,301 100,000 24,869 75,131 100,000 17,355 82,645 100,000 9,091 90,909 100,000 83,014 316,987* 400,000* *Adjusted for rounding of other numbers in the schedule. The lessee records interest at the effective interest rate and then “plugs” the right-ofuse asset amortization at whatever amount is needed for interest plus amortization to equal the straight-line lease payment. In a short-term lease, the lessee can elect not to record a right-of-use asset and lease payable at the beginning of the lease term, but instead to simply record lease payments as expense as they occur.
Spiceland_Inter_Accounting8e_Ch15
To see the actual publication please follow the link above