Intermediate Accounting, 15th Edition

CHAPTER 21 Accounting for Leases

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Explain the nature, economic substance, and advantages of lease transactions.
2. Describe the accounting criteria and procedures for capitalizing leases by the lessee.
3. Contrast the operating and capitalization methods of recording leases.
4. Explain the advantages and economics of leasing to lessors and identify the classifications of leases for the lessor.
5. Describe the lessor's accounting for direct-financing leases.
6. Identify special features of lease arrangements that cause unique accounting problems.
7. Describe the effect of residual values, guaranteed and unguaranteed, on lease accounting.
8. Describe the lessor's accounting for sales-type leases.
9. List the disclosure requirements for leases.

More Companies Ask, “Why Buy?”

Leasing has grown tremendously in popularity. Today, it is the fastest growing form of capital investment. Instead of borrowing money to buy an airplane, computer, nuclear core, or satellite, a company makes periodic payments to lease these assets. Even gambling casinos lease their slot machines. Of the 500 companies surveyed by the AICPA in 2011, more than half disclosed lease data.^*

A classic example is the airline industry. Many travelers on airlines such as United, Delta, and Southwest believe these airlines own the planes on which they are flying. Often, this is not the case. Airlines lease many of their airplanes due to the favorable accounting treatment ...