Chapter 15 Leases

CHAPTER 15

Leases

/// OVERVIEW

IN THE PREVIOUS CHAPTER, WE SAW HOW COMPANIES ACCOUNT FOR THEIR LONG-TERM DEBT. THE FOCUS OF THAT DISCUSSION WAS BONDS AND NOTES. IN THIS CHAPTER WE CONTINUE OUR DISCUSSION OF DEBT, BUT WE NOW TURN OUR ATTENTION TO LIABILITIES ARISING IN CONNECTION WITH LEASES. LEASES THAT PRODUCE SUCH DEBTOR/CREDITOR RELATIONSHIPS ARE REFERRED TO AS CAPITAL LEASES BY THE LESSEE AND AS EITHER DIRECT FINANCING OR SALES-TYPE LEASES BY THE LESSOR. WE ALSO WILL SEE THAT SOME LEASES DO NOT PRODUCE DEBTOR/CREDITOR RELATIONSHIPS, BUT INSTEAD ARE ACCOUNTED FOR AS RENTAL AGREEMENTS. THESE ARE DESIGNATED AS OPERATING LEASES. THE CHAPTER CONCLUDES WITH A WHERE WE’RE HEADED ADDENDUM EXPLAINING IN DETAIL AN ACCOUNTING STANDARDS UPDATE (HEREAFTER, “ASU”) THE FASB PLANS TO ISSUE IN 2012 THAT SUBSTANTIALLY CHANGES HOW WE ACCOUNT FOR LEASES.

/// LEARNING OBJECTIVES

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

● LO1 Identify and describe the operational, financial, and tax objectives that motivate leasing. (page xxx)

● LO2 Explain why some leases constitute rental agreements and some represent purchases/sales accompanied by debt financing. (page xxx)

● LO3 Explain the basis for each of the criteria and conditions used to classify leases. (page xxx)

● LO4 Record all transactions associated with operating leases by both the lessor and lessee. (page xxx)

● LO5 Describe and demonstrate how both the lessee and lessor account for a capital lease. (page xxx)

● LO6 Describe and demonstrate how the lessor accounts for a sales-type lease. (page xxx)

● LO7 Describe the way a bargain purchase option affects lease accounting. (page xxx)

● LO8 Explain how lease accounting is affected by the residual value of a leased asset. (page xxx)

● LO9 Explain the impact on lease accounting of executory costs, the discount rate, initial direct costs, and contingent rentals. (page xxx)

● LO10 Explain sale-leaseback agreements and other...