INTERMEDIATE ACCOUNTING（赖红宁）4-4--CH20.pptVIP

Objectives 1. Explain the advantages of leasing. 2. Understand key terms related to leasing. 3. Explain how to classify leases of personal property. 4. Account for a lessee’s operating and capital leases. 5. Understand disclosures by the lessee. Advantages of Leasing from Lessee’s Viewpoint Financial benefits Risk benefit Tax benefit Financial reporting benefit Billing benefit Advantages of Leasing from Lessee’s Viewpoint The lease provides 100% financing, so that the lessee acquires the asset without having to make a down payment. The lease contract contains fewer restrictive provisions and is more flexible than other debt agreements. The leasing arrangement creates a claim that is against only the leased equipment and not against all assets. Key Terms Related to Leasing Classification of Leases Involving Personal Property Operating Lease (Lessee) Capital Lease (Lessee) Bargain Purchase Option Guaranteed Residual Value Disclosure Requirements for Lessee Lessor’s Classifications Operating lease Sales-type lease Direct financing lease Leverage lease Operating Lease (Lessor) Direct Financing Leases (Lessor) Conceptual Issues Disclosure Requirements for the Lessor Karpas Company leases equipment for four years that cost the lessor $147,284.99 (its fair value) and agrees to pay an annual rent of $40,000 at the end of each year. Karpas Company agrees to guarantee the estimated residual value of $30,000 at the end of the fourth year. Assume a 10% interest rate. Guaranteed Residual Value Leased Equipment Under Capital Leases 147,284.99 Accumulated Depreciation: Leased Equipment 117,284.99 Obligation Under Capital Leases 30,000.00 At the end of the lease, both parties agree that the equipment is worth only $20,000. Accumulated Depreciation: Leased Equip. 117,284.99 Obligation Under Capital Leases 30,000.00 Loss on Disposal of Leased Equipment 10,000.00 Leased Equipment Under Capital Leases 147,284.99 Cash 10,000.00 Guaranteed Residual Value If the fair va