Terms in this set (18)
On January 1, Year 1, Frost Co. entered into a two-year lease agreement with Ananz Co. to lease 10 new computers. The lease term begins on 1/1/Y1 and ends on 12/31/Y2. The lease agreement requires Frost to pay Ananz two annual lease payments of $8,000. The present value of the minimum lease payments is 13,000. Which of the following circumstances would require Frost to classify and account for the arrangement as a finance lease under GAAP?
Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Under GAAP, one criterion for a finance lease classification is that the term of the lease represents the major part of the leased property's estimated economic life at the inception of the lease. What is a reasonable minimum threshold as a percentage for representing a major part of the asset's economic life?
On January 1, a company enters into an operating lease for office space and receives control of the property to make leasehold improvements. The company begins alterations to the property on March 1 and the company's staff moves into the property on May 1. The monthly lease payments begin on July 1. The recognition of lease expense for the new offices should begin in which of the following months?
As an inducement to enter a lease, Graf Co., a lessor, granted Zep, Inc., a lessee, twelve months of free rent under a five year operating lease. The lease was effective on 1/1/Y1 and provides for monthly lease payments to begin 1/1/Y2. Zep made the first lease payment on 12/30/Y1. In its 12/31/Y1 IS, Graf should report lease revenue in an amount equal to:
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