472, Ch21

Front 1

bargain purchase option

Back 1

a provision allowing the lessee to purchase the leased property for a price that is significantly lower than the property's expected fair value at the date the option becomes exercisable

Front 2

bargain renewal option

Back 2

a provision allowing the lessee to renew the lease for a rental that is lower than the expected fair rental at the date the option becomes exercisable

Front 3

capital lease

Back 3

a lease that is treated as if the lessor has transferred ownership of the property to the lessee and the rental payments made by the lessee to the lessor constitute a financing arrangement

Front 4

cost of goods sold (sales-type lease)

Back 4

the cost of the asset to the lessor, less the present value of any unguaranteed residual value

Front 5

direct financing lease

Back 5

leases that are in substance the financing of an asset purchase by the lessee

Front 6

discount rate

Back 6

the interest rate used by the lessee to compute the present value of the minimum lease payments; which is the lesser of (1) lessee's incremental borrowing rate or (2) the known implicit rate computed by the lessor

Front 7

executory costs

Back 7

the costs incurred during the economic life of leased tangible assets, such as insurance, maintenance and tax expenses

Front 8

guaranteed residual value

Back 8

the certain or determinable amount at which the lessor has the right to require the lessee to purchase the asset or the amount the lessee or a third-party guarantor guarantees the lessor will realize

Front 9

implicit interest rate

Back 9

the interest rate implicit in the lease that when applied to the minimum lease payments and any unguaranteed residual value accruing to the lessor, which causes the aggregate present value to be equal to the fair value of the leased property to the lessor

Front 10

incremental borrowing rate

Back 10

the rate that, at the inception of the lease, the lessee would have incurred to borrow the funds necessary to buy the leased asset on a secured loan with repayment terms similar to the payment schedule called for in the lease

Front 11

incremental direct costs

Back 11

the costs paid to independent third parties incurred in originating a lease arrangement, such as the cost of independent appraisal of collateral used to secure a lease, the cost of an outside credit check of the lessee, or a broker's fee for finding the lessee

Front 12

initial direct costs

Back 12

incremental direct costs and internal direct costs

Front 13

internal direct costs

Back 13

the costs directly related to specified activities performed by the lessor on a given lease, such as evaluating the prospective lessee's financial condition and evaluating and recording guarantees, collateral, and other security arrangements

Front 14

internal indirect costs

Back 14

the costs indirectly related to specified activities performed by the lessor on a given lease, such as advertising, servicing existing leases, and establishing and monitoring credit policies

Front 15

lease

Back 15

a contractual agreement between a lessor and a lessee that gives the lessee the right to use specific property, owned by the lessor, for a specific period of time in return for stipulated, and generally periodic, cash payments (rents)

Front 16

lessee

Back 16

the party that receives the right to use property owned by the lessor, in return for cash payments (rents) under the terms of a lease

Front 17

lessor

Back 17

the party that gives the lessee the right to use specific property, owned by the lessor, for a specific period of time under the terms of a lease

Front 18

minimum lease payments

Back 18

minimum rental payments adjusted for any guaranteed residual value, any penalty for failure to renew, and a bargain purchase option

Front 19

minimum rental payments

Back 19

minimum payments the lessee is obligated to make to the lessor under the lease agreement

Front 20

minor leaseback

Back 20

a leaseback in which the present value of the rental payments are 10% or less of the fair value of the asset

Front 21

noncancelable

Back 21

the lease contract is cancelable only upon the outcome of some remote contingency or that the cancellation provisions and penalties of the contract are so costly to the lessee that cancellation probably will not occur

Front 22

off-balance-sheet financing

Back 22

the result when a lease does not add debt on a balance sheet or affect financial ratios

Front 23

operating lease

Back 23

leases that are not classified as capitalized leases

Front 24

operating method

Back 24

the method of accounting for an operating lease whereby rent expense (and a compensating liability) accrues day by day to the lessee as the property is used

Front 25

residual value

Back 25

the estimated fair (market) value of the leased property at the end of the lease term

Front 26

sale-leaseback

Back 26

a transaction in which the owner of property (seller-lessee)sells the property to another and simultaneously leases it back from the new owner

Front 27

sales price of the asset (sales-type lease)

Back 27

under a sales-type lease, it is the present value of the minimum lease payments

Front 28

sales-type lease

Back 28

a direct financing lease which also accounts for the manufactuer's or dealer's gross profit (or loss)

Front 29

third-party guarantor

Back 29

a separate party which acts like an insurer by guaranteeing the residual value of leased assets

Front 30

unguaranteed residual value

Back 30

the amount of residual value which is not guaranteed