NASSAU COMMUNITY COLLEGE DEPARTMENT OF ACCOUNTING &BUSINESS; ACC 202 PART 4 ACCO

ID: 2596500 • Letter: N

Question

NASSAU COMMUNITY COLLEGE DEPARTMENT OF ACCOUNTING &BUSINESS; ACC 202 PART 4 ACCOUNTING FOR LEASES (MATCHING EXAM 4 Shown below is a list of key terms (a-) related to leasing, folowed by a series of definitions (1-3 a. Bargain purchase option b. Executory costs c. Guaranteed residual value d. Initial direct costs e. Interest rate implicit in lease f. Lessee's incremental borrowing rate Manufacturer's/dealers profit or loss h. Minimum lease payments i. Unguaranteed residual value . Un-reimbursable cost 1. Incurred by the lessor to originate a lease that result directly from and are essential to acquiring the lease and would not have been incurred had the lease transaction not occurred. 2. Portion of estimated residual value not guaranteed by the lessee. Required to be paid by the lessee to the lessor over the life of the lease. Rate that would have been incurred if the property had been purchased by debt. Rate that equates the fair value of the leased property and the present value of 3. 4. 5. the lease payments plus the unguaranteed residual value. 6. Provision that allows the lessee to purchase the leased property at a price so favorable it is a reasonable certainty that the sale will occur. 7. The difference between the fair value of the property at the beginning of the lease and its cost or carrying value. -8. Commitments by the lessor to guarantee performance of the leased property in a manner more extensive than the typical product warranty Potion of the residual value of the leased property that is guaranteed by the lessee. 9, 10. Ownership-type costs, such as insurance, maintenance, and property taxes. Required: Match each term to its definition by placing the appropriate letter in the space provided.

Explanation / Answer

Answer:

initial direct costs

Incurred by the lessor to originate a lease that result directly from and are
essential to acquiring the lease and would not have been incurred had the lease transaction not occurred.

unguaranteed residual value

Portion of estimated residual value not guaranteed by the lessee.

minimum lease payments

Required to be paid by the lessee to the lessor over the life of the lease.

lessee's incremental borrowing rate

Rate that would have been incurred if the property had been purchased by debt.

interest rate implicit in the lease

Rate that equates the fair value of the leased property and the present value of the lease payments plus the unguaranteed residual value.

bargain purchase option

Provision that allows the lessee to purchase the leased property at a price so favorable it is a reasonable certainty that the sale will occur.

manufacturer's/dealer's profit or loss

The difference between the fair value of the property at the beginning of the lease and its cost or carrying value.

unreimbursable cost

Commitments by the lessor to guarantee performance of the leased property in a manner more extensive than the typical product warranty.

guaranteed residual value

Portion of the residual value of the leased property that is guaranteed by the lessee.

executory costs

Ownership-type costs, such as insurance, maintenance, and property taxes.