Table of Contents

Course Learning Objectives. 4

Part I. The Fundamentals of the Lease Accounting - Section 1. 1

Rising to the Challenge. 1

The Reason for the New Guidance. 1

The Significant Improvements for Lease Accounting. 1

Key Changes of the Lease Requirements. 3

Applicability. 7

Section 1 Review Questions. 9

Part I. The Fundamentals of the Lease Accounting - Section 2. 10

Transition Guidance. 10

Effective Dates. 10

Practical Expedients. 10

Leases Acquired in a Business Combinations. 11

Transition Requirements. 12

General Rules. 12

Lessee Transition. 12

Operating Leases. 13

For Former Operating Leases Classified as Operating Leases. 13

For Former Operating Leases Classified as Finance Leases. 14

Capital Leases. 15

For Former Capital Leases Classified as Finance Leases. 15

For Former Capital Leases Classified as Operating Leases. 15

Build-to-Suit Lease Arrangements. 16

Lessor Transition. 17

Operating Leases. 17

Finance Leases. 17

Leveraged Leases. 17

Sale and Leaseback. 18

Retrospective Reporting Compliance. 18

Section 2 Review Questions. 20

Part I. The Fundamentals of the Lease Accounting - Section 3. 21

The Core Principles of Lease Accounting. 21

Key Concepts. 21

Definition of a Lease. 22

Lease Classification. 22

Lessee Accounting. 24

Lessor Accounting. 25

U.S. GAAP vs. IFRS. 26

Section 3 Review Questions. 29

Part II. The Impact of the New Lease Standard - Section 4. 30

Required Organizational Changes. 30

Overall Challenges. 30

Strategies. 31

Exhibit A: Walgreens Boots Alliance 2016 Annual Report. 33

Implementation Strategies. 34

Enhancing Lease Administration Systems. 34

Improving the Business Processes. 36

Implementing Proper Controls. 38

Increased Estimates and Judgments. 40

The Risk of Material Misstatement 40

Enhancing the Quality of Accounting Estimates. 41

Implications to Debt Covenants and Financial Statements. 42

Debt Covenants. 42

Financial Metrics. 43

Implications to Real Estate Industry. 46

Overview.. 46

Lessee (Tenants) Accounting. 46

Lessor (Landlords) Accounting. 46

Other Considerations. 47

SEC Registrants Reporting Responsibilities. 48

Sarbanes-Oxley Act Assessment 48

SOX Section 404. 48

SOX Section 302. 49

General Disclosure Rules. 49

Exhibit B: FedEx 2017 Annual Report. 50

Annual Disclosures in First Quarterly Filing. 50

Financial Data Disclosure Requirements. 51

Section 4 Review Question. 52

Part III: The Application of the Lease Standard - Section 5. 53

General Rules. 53

Identification of a Lease. 53

Identified Asset. 55

Substantive Substitution Rights. 55

Portions of Assets. 55

Right to Control the Use of the Identified Asset. 56

Right to Obtain the Economic Benefits from the Use of the Identified Asset 56

Right to Direct the Use of the Identified Asset 56

Separation of Lease and Nonlease Components. 58

Contract Combinations. 61

Lease Commencement Date. 62

Initial Recognition and Measurement 62

Lease Term and Purchase Options. 62

Lease Payments. 64

Initial Direct Costs. 66

Discount Rate for the Lease. 67

Subsequent Measurement 69

Lease Modifications. 70

Disclosures. 71

Section 5 Review Questions. 74

Part III: The Application of the Lease Standard - Section 6. 75

Lessee Model 75

Measurement of the Consideration in the Contract 75

Determining the Consideration. 75

Allocating the Consideration. 76

Lease Classification. 77

Initial Recognition and Measurement 79

Short-Term Leases. 79

Finance Leases. 80

Operating Leases. 81

Subsequent Measurement 82

Remeasurement of the Lease Liability. 82

Finance Lease. 83

Operating Lease. 83

Leasehold Improvements. 85

Subleases. 85

Lease Termination. 86

Lease Modifications. 86

Presentation. 89

Balance Sheet. 89

Income Statement. 89

Statement of Cash Flows. 89

Disclosures. 90

Qualitative Disclosure. 90

Quantitative Disclosure. 91

Section 6 Review Questions. 93

Part III: The Application of the Lease Standard - Section 7. 94

Lessor Model 94

Measurement of the Consideration in the Contract 94

Determining the Consideration. 94

Allocating the Consideration. 96

Lease Classification. 97

Initial Recognition and Measurement 99

Sales-Type Leases. 100

Direct Financing Leases. 102

Operating Leases. 103

Subsequent Measurement 104

Sales-Type and Direct Financing Leases. 104

Impairment of the Net Investment in the Lease. 104

Sale of the Lease Receivable. 104

Underlying Asset 104

Lease Termination. 105

Operating Leases. 105

Subleases. 105

Lease Modifications. 105

Presentation. 110

Sales-Type and Direct Financing Leases. 111

Balance Sheet 111

Income Statement 111

Statement of Cash Flows. 111

Operating Leases. 112

Disclosures. 112

Qualitative Disclosure. 112

Additional Disclosure. 113

Sales-Type and Direct Financing Leases. 113

Operating Leases. 113

Section 7 Review Questions. 115

Part III: The Application of the Lease Standard - Section 8. 116

Sale and Leaseback Transactions. 116

General Rules. 116

Attributes of a Contract. 116

Indicators that Control of the Asset Has Transferred. 117

Lessee Involvement in the Construction or Design of the Underlying Asset 118

Recognition. 119

Initial Measurement 120

Section 8 Review Questions. 123

Solutions to Review Questions. 124

Section 1 Review Questions Feedback. 124

Section 2 Review Questions Feedback. 126

Section 3 Review Questions Feedback. 128

Section 4 Review Question Feedback. 131

Section 5 Review Questions Feedback. 133

Section 6 Review Questions Feedback. 136

Section 7 Review Questions Feedback. 138

Section 8 Review Questions Feedback. 140

Glossary. 141

Index. 145

CPE Exam Answer Sheet 146

Final Examination. 148

CPASelfstudy.com Course Evaluation. 155