CHAPTER 21 ACCOUNTING FOR LEASES EXAM
QUESTIONS AND COMPLETE SOLUTIONS GRADED A+
3 categories of lessors - ANSWER1. banks
2. captive leasing companies
3. independents
advantages of leasing - ANSWER1. 100% financing at fixed rates (no down
payment for lessee)
2. protection against obsolescence (passes risk of residual value to the lessor)
3. flexibility (lessors can tailor lease agreement to needs of the lessee)
4. less costly financing (leases allow for tax benefits)
5. tax advantages (dont report asset/liability on books but can capitalize and
depreciate the leased asset for tax purposes and take deductions earlier)
6. off-balance-sheet financing (don't add debt to balance sheet)
journal entry for capitalized lease (lessee) - ANSWERLeased Equipment
Lease Liability
QUESTIONS AND COMPLETE SOLUTIONS GRADED A+
3 categories of lessors - ANSWER1. banks
2. captive leasing companies
3. independents
advantages of leasing - ANSWER1. 100% financing at fixed rates (no down
payment for lessee)
2. protection against obsolescence (passes risk of residual value to the lessor)
3. flexibility (lessors can tailor lease agreement to needs of the lessee)
4. less costly financing (leases allow for tax benefits)
5. tax advantages (dont report asset/liability on books but can capitalize and
depreciate the leased asset for tax purposes and take deductions earlier)
6. off-balance-sheet financing (don't add debt to balance sheet)
journal entry for capitalized lease (lessee) - ANSWERLeased Equipment
Lease Liability
