Accounting for Leases
1.Which of the following is false?
A.The lessee uses the lower of its incremental borrowing rate or the lessor's desired return rate (if known) when determining the present value of minimum lease payments.
B.A lease is capitalized if the present value of the minimum lease payments is greater than or equal to 75% of the estimated fair market value of the leased asset.
C.An operating lease is an example of off-balance-sheet financing.
D.Including a guaranteed residual value makes it more likely that a lessee will capitalize a lease.
2.Distinguish between rental payments and minimum lease payments. Indicate what is included in minimum lease payments.
3.What is the major financial statement difference between an operating lease and a capital lease for a lessee?
Financial Statement Analysis
Many businesses lease capital assets rather than purchasing them. Southwest Airlines is one such company. Use the company's 2012 financial statements and the related notes to answer the following questions. You can ignore the section of the lease note that discusses the sale/leaseback transactions. The 2012 annual report of Southwest Airlines can be found here: http://www.sec.gov/Archives/edgar/data/92380/000119312513041608/d480533d10k.htm
1.Does Southwest have any capital leases at the end of 2012? If yes, what assets are being leased in this manner and what is net value of these assets in the property and equipment section of the company's Balance Sheet?
2.What assets are being leased under operating leases at the end of 2012?
3.How much rental expense did Southwest incur on its operating leases during 2012? Where are these rental expenses included on the Income Statement?
4.What are some of the characteristics or provisions of Southwest's (as lessee) leases?
5.What amount did Southwest report as its total future minimum annual rental commitments under noncancelable operating leases?
6.At 12/31/12, what was the total present value of the minimum lease payments under Southwest's capital leases?
This question was answered on: Sep 16, 2020
Need a similar solution fast, written anew from scratch? Place your own custom order
We have top-notch tutors who can help you with your essay at a reasonable cost and then you can simply use that essay as a template to build your own arguments. This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student. New solution orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.