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by: Nicole Nord

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# Professor Schmutte Chapter 21 Study Guide Acc 302

Marketplace > Ball State University > Accounting > Acc 302 > Professor Schmutte Chapter 21 Study Guide
Nicole Nord
BSU
GPA 3.2

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I have compiled all the notes from class and my own personal notes and tips to make this the best study guide out there to get you an A on the exam. Good luck to you all :)
COURSE
Intermediate Accounting 2
PROF.
James Schmutte
TYPE
Study Guide
PAGES
4
WORDS
KARMA
50 ?

## Popular in Accounting

This 4 page Study Guide was uploaded by Nicole Nord on Sunday December 13, 2015. The Study Guide belongs to Acc 302 at Ball State University taught by James Schmutte in Fall 2015. Since its upload, it has received 72 views. For similar materials see Intermediate Accounting 2 in Accounting at Ball State University.

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Date Created: 12/13/15
Acc 302 Study Guide Chapter 21 Professor Schmutte Types of Leases: (Lessee Perspective) 1. Capital lease: The least must be non-callable and meet the following 4 criteria: a. What happens at the end of the lease? Is there a transfer of ownership? If yes then it is a capital lease. b. At the end of the lease does the lessee have the option to purchase the asset? i. Bargain purchase option: is an option within the lease that allows the lessee to purchase the leased property at a price that is significantly lower than the fair value of the property. c. How long is the life of the lease compared to the life of the asset? If the life of the lease is 75% or more of the life of the asset then the lease is a capital lease. d. Compare the present value of the lease payments to the fair value of the asset if the fair value of the lease payments is 90% or more of the fair value of the asset then the lease is a capital lease. e. You only need to satisfy ONE of these criteria’s to be a capital lease! 2. Operating lease: If the lease does not meet any of the above criteria then it is an operating lease. 3. Journal Entries: a. Capitalizing a lease: Leased equipment………………………………XXXX Lease Liability……………………………………..XXXX b. Making a payment on the lease: Lease Payable………………………………......XXXX Executory Expense……………………………..XXXX Cash………………………………………………..XXXX c. Record depreciation on the asset Depreciation Expense…………………………..XXXX Accumulated Dep………………………………….XXXX d. Record Interest Expense Interest Expense………………………………..XXXX Interest Payable……………………………………XXXX 4. Lease accounting –In class example- Lease accounting 11/12/15 Period Payment Executory Interest Principle Balance (Cash) Costs 10% 0 144,288 1 52,000* 2,000* 0 50,000 94,288 2 52,000 2,000 9,429** 40,571 53,717 3 52,000 2,000 5,372 44,571 9,098 4 10,000 N/A 911 9,098 -0- *These are both stated in the problem ** (94,288 * 10%) = 9,429 Journal Entries 1/1/X1 Leased Equipment………………………. 144,288 Lease payable………………………………….144,288 1/1/X1 Lease Payable…………………………… 50,000 Executory Costs………………………..... 2,000 Cash……………………………………………. 52,000 12/31/X1 Depreciation Expense…………………… 28,657 Accumulated Depreciation…………………….. 28,657 12/31/X1 Interest Expense………………………….. 9,429 Interest Payable……………………………….. 9,429 Types of Leases: (Lessor Perspective) 1. Direct financing lease: to be a capital lease from the lessor’s perspective the lease must meet one of the above 4 criteria plus two more. a. Is there a collectability problem? If yes then the lease is NOT a capital lease. b. Does the lessor have any commitments in connection with the asset? If yes then the lease is NOT a capital lease. c. To be a direct financing lease (capital lease) the lease must meet one of the 4 original criteria plus BOTH of these two criteria’s 2. Operating lease: If the lease does not meet any of the above criteria then it is an operating lease. 3. Sales Type lease: if the assets fair value does not equal the lessors book value then the lease is an operating lease Journal Entries: 1. To record lease creation: Lease Receivable…………………………….. XXXX Cost of goods sold…………………………….XXXX Sale……………………………………………………XXXX Inventory………………………………………………XXXX 2. To record receipt of payment: Cash…………………………………………..XXXX Lease Receivable……………………………………...XXXX Executory Payable…………………………………….XXXX 3. To Record interest revenue Interest Revenue…………………………………..XXXX Interest Receivable…………………………………….XXXX *In class example from lessor perspective* Lease accounting 11/12/15 Period Payment Executory Interest Principle Balance (Cash) Costs 10% 0 144,288 1 52,000* 2,000* 0 50,000 94,288 2 52,000 2,000 9,429** 40,571 53,717 3 52,000 2,000 5,372 44,571 9,098 4 10,000 N/A 911 9,098 -0- 1/1/X1 Lease Receivable…………………………... 144,288 Cost of goods sold…………………………. 100,000 Sale……………………………………………… 144,288 Inventory………………………………………… 100,000 1/1/X1 Cash………………………………………… 52,000 Lease Receivable………………………………… 50,000 Executory Payable………………………………… 2,000 12/31/X1 Interest revenue……………………………… 9,429 Interest Receivable………………………………… 9,429 Practice Problems: E 21-1, 4 ,6 ,8 ,9 ,14 ,15 ,13 P21-3, 13, 14

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