MGMT 351 Lecture on leases
MGMT 351 Lecture on leases MGMT 351
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This 3 page One Day of Notes was uploaded by Emily McIlhattan on Monday February 2, 2015. The One Day of Notes belongs to MGMT 351 at Purdue University taught by Byong Ro in Winter2015. Since its upload, it has received 260 views. For similar materials see Intermediate Accounting II in Accounting at Purdue University.
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Date Created: 02/02/15
Mgmt 351 Lecture on Leases Last Lecture Outline I Asset Swap II Equity Swap Ill Modi cation of debt nancing IV Conversion of Debt Current Lecture Outline I Accounting For Leases a What Are Leases II Basic Ideas of Lease Accounting III Basic Concepts and Notations IV Types of Leases V Lessor39s Accounting Current Lecture I Lease a contract under which one party Lessee pays rents and acquire to use an asset that is owned by another party Lessor a Why i Tax advantages depreciation GRV and interestrent expense GRV guaranteed residual value of the asset ii Offbalance sheet debt nancing for certain leases not debt on 85 don39t have to show the liability on the bs II Basic ideas a RV residual value value at the end of asset at end of the lease i Lease Liability at signing is PV of all rent payments PV of RV if you are required to take over asset at end of the term III Basic concepts NCL noncancellable leases C capital lease OL operating lease STL salestype lease DFL direct nancing lease MLP minimum lease payment MRPGRV or BPO price any payment required at end of the lease MRP Iessee39s minimum basic rental payments URV unguaranteed residual value not obligated under contract i PV of Lessee39s PV MRPExCost if included in MRPPVOA GRV or BPO pricePVS only include residual value if it is guaranteed 1 Must use the lower of implicit vs borrowed interest rates ii PV of Lessor s PV MRP EXCost if included in MRPPVOA RV or BPO price receipt at lease endPVS this is equal to the fair value of the asset residual value is always there 1 Uses the implicit interest rate i ExCosts Executory costs cost of owning the asset like repair maintenance property tax insurance different than rent j Gross Investment ThrDQDO39QJ D39LQ Mgmt 351 k Net lnvestment PVor fair value of asset l Unearned Interest Revenue lessors unearned interest revenue Groslnv Netlnv receivables IV Types of Leases a Capital lessee recognizes depreciation i Use economic life if lease quali es under transfer of ownership or BPO ii Use lease term if lease quali es under lease term being greater than or equal to 75 of the assets economic life or if the PV of the MLP is greater than or equal to 90 of the assets FV to the Lessor b Operating lease is treated like rental payments using periodic rent payments V Lessor39s Accounting a STL i Meets 1 or more CL criteria ii There is a pro t or loss iii Collection of MLP is reasonably assured iv There is no Lessor39s cost yet to be considered v quot all of these conditions must be met b Net Receivable Gross lease receivable unearned interest revenue 1 Roadway Lessee The lease is a CL because lease 5 yrs gt life 5 yrs75 No PVeegt 90FV 804727 True PVee 200kPVOA 5 8 URV 0PVS58 798542 FV PVor 200kPVOA 5 8 RV 75kPVS58 804 727 PVee 798542 PVOr 804727 Alcam Lessor The lease is SalesType Lease bc 1 2 pro t sales realized cost of sales 804727 PV URV 600k PV of URV 204 727 so pro t 3 No collection problem 4 No leftover cost Mgmt 351
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