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Chapter 21
Definitions
8
Accounting
Undergraduate 1
11/16/2009

Additional Accounting Flashcards

 


 

Cards

Term

 

 

 

 

Lease

Definition

 

 

 

a contractual agreement between a lessor and a lessee.  Lessor givers lesse right to use property for a period of time in return for rental payments by lessee over this period.

Term




Bargain Renewal Option

Definition



Allows the lessee to renew the lease for a rental that is lower than the expected fair rental at the date the option becomes exercisable.


Term

 

 

 

 

Guaranteed Residual Value

Definition

 

 

 

The residual value is the estimated fair market value of the leased property at the end of the lease term.. ILFC may transfer the risk of loss to Delta or to a thrid party by obtaining a guarantee of the estimated residual value.  The guaranteed residual value is either:

  1. the certain or determinable amount that Delta will pay ILFC at the end of the lease to purhase the aircraft at the end of the lease or
  2. the amount Delta or the third party guarantees that ILFC will realize if the aircraft is returned.
Term

 

 

Third party guarantors

Definition

 

 

 

are insurers who for a fee assume the risk of deficiencies in leased asset residual value

Term

 

 

 

Executory Costs Include

Definition
  1. Insurance
  2. Maintenance
  3. Tax Expenses

 

Term

 

 

 

Bargain Purchase Option

Definition
An option given to Delta to purchase the aircraft at the end of the lease term at a price that is fixed sufficiently below the expected fair value, so that, at the inception of the lease, purchase is reasonably assured
Term

 

 

 

Discount Rate

Definition
Delta computes the PV of the minimum lease payments using its incremental borrowing rate.

This rate is defined as:

"The rate that at the inception of the lease, the lessee would have incurred to borrow the funds necessary to buy the leased asset on a secured loan with repayment terms similar to the payment schedule called for in the lease."
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