Lease Accounting

Lessee
Operating Lease
Capital lease

Lessor
Operating lease
Capital lease
direct financing lease
sales type lease

lessee
1/1/2013 no entry

6/30/2013 rent expense $ 10,000.00

cash $ 10,000.00

12/31/2013 rent expense $ 10,000.00

cash $ 10,000.00

12/31/2013

`
 if payments were made 1/1 and 7/1
Lessor lessee
Cash $ 10,000.00 prepaid expense
rent revenue $ 10,000.00 cash

Cash $ 10,000.00
rent revenue $ 10,000.00

depreciation exp $ 15,000.00

acc dep $ 15,000.00
ts were made 1/1 and 7/1

$ 10,000.00
$ 10,000.00

Operating Lease
se
Learn slide 5

lessee
7/1/2018 leased equipment 150,000.00
lease payable 150,000.00

7/1/2018 lease payable 5,376.00

cash 5,376.00

10/1/2018 interest expense 2,892.48

lease payable 2,483.52
cash 5,376.00

12/31/2013 dep expense 7,500.00

acc depreciation 7,500.00

1/1/2018
 1
lessor 2
accounts receivables 150,000.00 3
leased equipment 150,000.00 4
5
cash 5,376.00 6
accounts receivable 5,376.00 7
8
Cash 5,376.00 9
accounts receivable 2,483.52 10
interest revenue 2,892.48
date payment effective interest decrease in balance outstanding balance
7/1/2013 5,376.00 - - 144,624.00
10/1/2013 5,376.00 2,892.48 2,483.52 142,140.48
1/1/2013 5,376.00 2,842.81 2,533.19 139,607.29
 lessee
1/1/2017 leased equipment 140,000.00
lease payable 140,000.00

1/1/2017 lease payable 26,269.00 (no interest yet)

cash 26,269.00

12/31/2017 interest expense 5,687.00

interest payable 5,687.00

balance of lease payable at 12/31 113,731.00

1/1/2018 interest payable 5,687.00

lease payable 20,582.00
cash 26,269.00

12/31/2018 interest expense 4,657.45

interest payable 4,657.45

balance of lease payable at 12/31 93,149.00

lessor
accounts receivable 140,000.00 date payment
leased equipment 140,000.00 1.00 43,101.00 26,269.00
2.00 43,101.00
Cash 26,269.00 3.00 43,465.00
accounts receivable 26,269.00 4.00
5.00
interest receivable 5,687.00
interest revenue 5,687.00

cash 26,269.00
interest receivable 5,687.00
lese receivable 20,582.00

interest receivable 4,657.45

interest revenue 4,657.45
effective interest decrease in balance outstanding balance amount pvad
- - - 113,731.00 26,269.00 5.32948
present value of payments
140,000.00
operating lease lessee lessor
title of asset x
asset on books of x
who record dep exp x

capital lease
title of asset x
asset on books of x
who record dep exp x
 lease payments 562,907.00
pv factor 5.32948
pv of lease payments 3,000,000.00

lessee aje 6/30/2013 leased equipment 3,000,000.00

lease payable 3,000,000.00

lease payable 562,907.00

cash 562,907.00

12/31/2013 lease payable 441,052.00

lease expense 1,218,555.00
cash 562,907.00

depreciation expense 500,000.00

acc depr 500,000.00

Direct Financing Lease

 lessor aje 6/30/2013
accounts receivable 3,000,000.00
leased equipment 3,000,000.00

cash 562,907.00
acct receivable 562,907.00

cash - 562,907.00
interest revenue - 121,855.00
acct receivable 441,052.00
-

ase
 1.00 2.00 3.00 4.00
lease terms 4.00 4.00 4.00 4.00
asset's useful life 6.00 5.00 6.00 6.00
asset's fair value? 44,000.00 43,000.00 41,000.00 39,000.00
bargain purchase option no yes no no
annual lease payments beg of yr end of yr. beg of yr end of yr.
lessor's implicit rate 5% 6% 5% 6%
lessee's incremental borrowing rate 5% 5% 5% 5%

classification operating capital lease operating lease

pv lease payments
% of fair vlaue
0.67

53,294.80

0.73

0.67
0.75
lease term 2.00 years
quarterly rental payments 15,000.00 at beg of period
economic life of asset 2.00
fair value of asset 7.47199 112,080 this came from present valu
implicit interest rate 8%

date payment interest expense decrease in balance book value

1/1/2013 15,000.00 15,000.00 97,080.00
4/1/2013 15,000.00 1,941.60 13,058.40 84,021.60
7/1/2013 15,000.00 1,680.43 13,319.57 70,702.03
etc 15,000.00 1,414.04 13,585.96 57,116.07
etc 15,000.00 1,142.32 13,857.68 43,258.39
etc 15,000.00 865.17 14,134.83 29,123.56
etc 15,000.00 582.47 14,417.53 14,706.03
etc 15,000.00 294.12 14,705.88 0.15

1/1/2013 lessee
Equipment 112,080.00
lease payable 112,080.00

1/1/2013 lease payable 15,000.00

cash 15,000.00

4/1/2013 interest expense 1,941.60

lease payaable 13,058.40
cash 15,000.00

7/1/2013 interest expense 1,680.43

lease payable 13,319.57
cash 15,000.00
 Capital Lease: direct fin
came from present value annuity due table Capital Lease: If the lessor BUYS the equipment, it's catag
if the lessor MANUFACTURES the equipment, it's a SALES

remember, watch where interest actually STARTS!!! Don't assume it's during the fir

lessor
lease receivable 112,080.00
inventory/equipment 112,080.00

cash 15,000.00
lease receivable 15,000.00

cash 15,000.00
lease receivable 13,058.40
interest revenue 1,941.60

cash 15,000.00
lease receivable 13,319.57
interest revenue 1,680.43
e: direct financing
the equipment, it's catagorized as a Direct Financing lease
e equipment, it's a SALES TYPE lease

assume it's during the first year!!

lease term 2.00 years manufactured the equipment for 85,000
quarterly rental payments 15,000.00 at beg of period
economic life of asset 2.00
fair value of asset 7.47 112,079.85
implicit interest rate 0.08

lessee
equipment 112,080.00
lease payable 112,080.00

lease payable 15,000.00

cash 15,000.00

all the rest of the payments are exactly the same as E4……it's the just the first en
ured the equipment for 85,000

CAPITAL LEASE: SAL

lessor
lease receivable 112,080.00
revenue 112,080.00 only the LESSOR has different accounting for this
COGS 85,000.00
inventory 85,000.00

cash 15,000.00
lease receivable 15,000.00

e same as E4……it's the just the first entry that differs for a sales type lease!
AL LEASE: SALES TYPE LEASE

different accounting for this kind of capital lease!!

aje jan 1, 2013 - lessee

prepaid rent 80,000.00

cash 80,000.00

prepaid rent 96,000.00

cash 96,000.00

leasehold improvements 180,000.00

cash 180,000.00

aje dec 31, 2013 - lessee

rent expense 80,000.00

prepaid rent 80,000.00

rent expense 32,000.00

prepaid rent 32,000.00

depreciation expense 60,000.00

acc dep 60,000.00
aje jan 1, 2013 - lessor

cash 80,000.00 Operating Le

unearned revenue 80,000.00

cash 96,000.00
unearned revenue 96,000.00

aje dec 31, 2013 - lessor

unearned revenue 80,000.00

revenue 80,000.00

unearned revenue 32,000.00

revenue 32,000.00
Operating Lease
selling price 391,548.00
15.32380
6,000,000.00

aje 9/30/2013
lessee
equipment 6,000,000.00
lease payable 6,000,000.00

lease payable 391,548.00

cash 391,548.00

aje 12/31/2013

lease payable 223,294.44

interest expense 168,253.56
cash 391,548.00

lease payable
interest expense
cash

balance sheet

lease payable 5,385,157.56

 15.32

Sales
aje 9/30/2013
lessor
account receivable 6,000,000.00
revenue 6,000,000.00

cogs 5,000,000.00
inventory 5,000,000.00 cv 6,000,000.00

Cash 391,548.00
account receivable 391,548.00

aje 12/31/2013

cash 391,548.00
account receivable 223,294.44
interest revenue 168,253.56

cash
account receivable
interest revenue

balance sheet

account receivable 5,385,157.56

Sales Type Lease

5,608,452.00
payments 26,269
pv annuity due 5.32948
present value 140,000

aje 1/1/2013
lessee
equipment 140,000
lease payable 140,000

lease payable 26,269

cash 26,269

aje 12/31
interest expense 5,687
lease payable 20,582
cash 26,269
aje 1/1/2013
lessor
account receivable 140,000
revenue 140,000

COGS 125,000
inventory 125,000
cv 113,731
cash 26,269
account receivable 26,269

aje 12/31
cash 26,269
account receivable 20,582
interest revenue 5,687