Question

1. In a lease transaction, which party is the lessor? Which one is the lessee?

2. There are currently two types of leases – Operating and Capital. Under a capital lease, which party records the asset on their books? What other account increases when we capitalize a lease? On which financial statement do we report this?

3. Under a capital lease, which party depreciates the asset and why?

4. Under a capital lease, the lease payments are divided into two components. What are they?

5. Which type of lease requires an entry to Lease Expense?

6. What are some of the benefits of leasing?

7. In three to five sentences, summarize the New Lease Accounting Rules. Be sure to include the major differences between the pre-2019 and new Lease Accounting rules. What was the primary reason for these changes?

Answer 1

Answer(1): Lessor- is a person who rents property to the other party. He receives the rent from lessee.

Lessee- is the tenant to who land or property is rented. He pays the rent to the lessor.

Answer(3): Lessee is considered to own the asset so he depreciates it so as to know the fair value of asset and to record the depreciation every year.

Answer(6): Benefits of Leasing- Are as following:

1. It saves huge investment at one time so saves cost also.
2. It is easier to change or replace the property or equipment in leasing.
3. Companies keep themselves up to date by replacing the machines and equipment and taking them on lease.