Bhkbbkj; Kj; J

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Assignment from the Readings Roberta Willis ACC 400 November, 2014 Kylene Smith ● Case 13-4 Application of SFAC No. 13 a. What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease. When there is a transfer in a lease, all benefits along with risk are transferred to the lessee and will be capitalized by the lessee as well. b. How should Lani account for this lease at its inception and determine the amount to be recorded? Lani should account for the lease from the beginning as an asset and the obligation to equal the current value towards the beginning of the term at minimum payment during the term. When the amount goes over the fair value of the lease the amount should be documented as an asset. c. What expenses related to this lease will Lani incur during the first year of the lease, and how will they be determined? Lani will obtain interest which will equal the amount used benefits the lease which is multiplied by the liability. She will receive fees associated with the depreciation of the cost of capital towards the cost of assets. d. How should Lani report the lease transaction on its December 31, 2006, balance sheet? The reports should fall under Lani’s December 31, 2006 balance sheet which displays non current and should be noted separately. The capital ease should be listed under the capital lease on December 31, 2006. Case 13-5 Lease Classifications a. What criteria must be met by the lease in order that Doherty Company classify it as a capital lease? 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Lease term is 75% or more of the estimated economic life of the asset 4. Present value of minimum lease payments is 90% or more of fair value of

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