Video: Leases Overview and Objectives

In this lesson, Nick Palazzolo, CPA, demystifies the complexities of accounting for leases, drawing parallels to familiar experiences like leasing a car to simplify the material. He breaks down lease classifications, such as operating and financing leases, into plain English to provide a clearer understanding of the concepts. This lesson delves into the practical side of leases, discussing how to identify lease arrangement criteria, calculate the carrying amount of lease-related assets and liabilities, and prepare accurate journal entries for both the lessor and lessee. Not stopping there, Nick also tackles how to record a sale leaseback transaction and how to determine the lease income to be recognized in the income statement, ensuring all facets of leases are covered thoroughly.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Oh, boy. The big bad lease section. Well, we are here, aren't we? Not too bad. We will dive through this.

There's a lot of similarities with bonds in terms of using our present value factors. We've also got lease classifications. Is it an operating lease? Is it a financing lease? I'm going to break that down and put it into plain English for you because this section could get heavy and I don't want it to be that way.

In my mind, there's no reason it can't just be a lot more down to earth and grounded. I'll put it in words we understand. And just like everything, there's a way to compare it to our day-to-day lives. Right. Like leasing a car. That's something we're a lot more familiar with than leasing a piece of machinery for a business. So I'll put it into real-world terms. Let's see what our learning objectives are today. Well, we want to identify the criteria for classifying a lease arrangement. There's going to be a big grouping of classifications. We're going to memorize them and get through them. Calculate the carrying amount of a lease, related assets and liabilities. Prepare the journal entries from both ends. Right. We've got the lessor and lessee relationship, so we've got both sides. That's going to be numbers two and three here. We want to calculate the lease costs that a lessee should recognize in the income statement. Right? Boom. Just more numbers.

More numbers. We're going to talk about the whole lease process. It's going to make a lot more sense. All right. We want to prepare journal entries that the lessor of the lessee should record for a sale leaseback transaction. Get out of the way for you there. And we also want to calculate the amount

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