Exam 4 Study Guide

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Exam 4 Study Guide

Study Guide
Illinois State University
Acc 232 - Intermediate Accounting II
Intermediate Accounting II Documents

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Intermediate Accounting 232 Exam # 4 Chapters 21 and 22 Chapter 21 Leases-gives ownership rights without the actual ownership, and the actual debt associated with the property to the lessee Advantages of Leasing: 1. Guaranteed payment 2. Guaranteed residual value Capital Leases-Need one of the following 4 criteria: 1. Ownership transfers at the end of the lease 2. Bargain purchase at the end of the lease 3. Lease payment is equal to or greater than 90% of the fair market value of the property (PC of the lease payment) 4. Life of the lease is 75% of the life of the asset 5. If it doesn’t meet at least 1 of the above material then it is an operating lease Know how to record journal entries for both lessor and lessee for capital and operating leases Executory costs-maintenance, property, supplies -If it is included in the lease payment, then we subtract it off for the present value calculation Know when to use the PV of annuity and annuity due tables, and without the tables The discount rate used to calculate the annuity is based on our discount rate, unless we know that the lessor uses and it is lower Bargain purchase, or a guaranteed value at the end, needs to be included. Know how to make the annuity tables and journal entries from lessee point of view. Lessor accounting: 1. if the lessor buys the equipment and leases to us, then it is a financing lease 2. manufacture or buy the equipment for less than the lease, sales-type lease 3. know how to journalize both

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