Finance Lease: Lessor's Perspective. CPA Exam. ACCA Exam

How does a lessor account for a finance lease, also called a sales-type lease? This lease accounting tutorial explains the lessor's classification tests, the lease receivable, recognizing a sale and profit, and building the amortization schedule — built for CPA exam candidates and accounting students studying FAR and intermediate accounting. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Video Timeline & Key Concepts: 0:00 — Introduction 0:24 — Classification tests: the lessor uses the same five criteria as the lessee, including ownership transfer, bargain purchase option, lease term, present value of payments, and alternative use 0:58 — Why a lessor finance lease is called a sales-type lease: the lessor is essentially selling the asset to the lessee 4:32 — Initial recording: the lessor recognizes a lease receivable equal to the present value of the lease payments plus the present value of any residual value 5:39 — Case study of Boeing Capital and Delta Airlines with journal entries and balance sheet presentation 11:16 — Recording the sale: the lessor removes the asset and recognizes profit as the difference between sales price and cost 12:21 — Amortization and interest: allocating each payment between interest revenue and reduction of the lease receivable Frequently Asked Questions: Why is a lessor finance lease called a sales-type lease? From the lessor's perspective, a finance lease effectively transfers the asset to the lessee, so it is treated as a sale. The lessor recognizes revenue and profit at inception, much like selling the asset outright. How does the lessor classify a lease? The lessor applies the same five classification tests the lessee uses: transfer of ownership, a bargain purchase option, the lease term relative to useful life, the present value of payments relative to fair value, and whether the asset has an alternative use. What does the lessor record at the start of the lease? The lessor records a lease receivable equal to the present value of the lease payments plus the present value of any residual value, guaranteed or unguaranteed. It also removes the underlying asset from its books and recognizes any profit on the sale. How is the amortization schedule used by the lessor? The amortization schedule splits each lease payment between interest revenue earned and the reduction of the lease receivable. Over time the receivable declines and interest revenue is recognized based on the outstanding balance. Who should watch this finance lease lesson? This lesson is designed for CPA exam candidates and college accounting students who need to master lessor finance lease and sales-type lease accounting within the FAR section and intermediate accounting. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #FAR #financelease #salestypelease #lessoraccounting #leaseaccounting #ProfessorFarhat