FAR 6_01

• Capital Lease
• O – W – N – S
• O = ownership of the asset transfers to the lessor at the end of the lease
• W = written option for a bargain purchase
• N = 90% of the PV of the lease pmts is >/= 90% of the FV of the asset
• S = 75% of the economic life
• Operating Lease
• All other leases that do not meet the capital lease criteria

• Lessee
• (1) No entry is made on the date the agreement is signed unless the lessor provides a deposit.
• (2) [DR] Cash
• … [CR] Rent Revenue (or Income)
• Lessor
• (1) No entry is made on the date the agreement is signed unless the lessor provides a deposit.
• (2) [DR] Rent Expense
• … [CR] Cash

Capitalize and depreciate the leasehold improvement

An object that is permanently affixed to the property and reverts back to the lessee at the end of the lease

• (1) Lease Bonus: Payment for future expenses. LR = capitalize and straight-line depreciate. LE = unearned revenue and amortize
• (2) Rent Kicker: A special rent for a special event, such as a % of sales over a certain amt. LR = expense in the period incurred. LE = income when received
• (3) Refundable Security Deposit: LR = liability, LE = asset
• (4) Nonrefundable Security Deposit: LR = unearned revenue until determined it is earned. LE = asset until determined it is earned

The total amount of the lease payments is divided by the number of months of the lease resulting in a lower per-month accrual. This lower amt is accrued each month and then reduced when the actual pmts begin.

• False
• The deposit is earned only when the lease is up.