Ch 15 LS

Which of the following are criteria for classification as a finance lease?

-ownership of the asset transfers to the lessee -the lease includes a purchase option the lessee is reasonably certain to exercise -the present value of the total lease payments is greater than substantially all of the fair value of the asset

Which of the following occur in a sale-leaseback transaction?

-the lessee receives cash from the sale of the asset -the lessee pays periodic rental payments

_______ ________ is an estimate of a leased asset's commercial value at the end of the leased term

Residual value

When the lessee is given the option of purchasing the leased property at a price significantly lower than its fair value, a ________ is present

bargain purchase option

The most likely motivation for a sale-leaseback transaction is to generate ________.

cash

A bargain purchase option is a provision in a lease contract that

gives the lessee the right to purchase the leased asset at a price significantly less than the expected fair value of the property

Sometimes a lease agreement includes a commitment by the lessee that the lessor will recover a specified amount when the asset is returned. This is known as

guaranteed residual value

The effective interest rate of return the lease payments provide the lessor is referred to as a

implicit rate

The rate of interest incurred by the lessee if funds were borrowed to purchase the leased asset is known as the _______ rate.

incremental borrowing

A lease is a contractual agreement by which a(n) ______ provides a(n) _________ the right to use an asset for a specified period of time.

lessor; lessee

A lease that is more true to the nature of a rental agreement is called a(n) _____ lease.

operating

The gain on a sale-leaseback classified as a(n) _______ lease is recognized at the time of the sale

operating

The two basic lease classifications by a lessor are

operating and sales-type

Selling profit exists in a sales-type lease when the

present value of the lease payments is greater than the cost of the asset

A _______ is a lease provision giving the lessee the option to buy the leased property at the end of the lease term at a specified exercise price.

purchase option

The gain on a sale-leaseback classified as an operating lease is

recognized at the time of the sale

operating finance or sales-type

rights and responsibilities of ownership are retained by the lessor rights and responsibilities of ownership are transferred to the lessee

lessee lessor

user of the property owner of the property