CH 10: Leases, Pensions, & Income Taxes

These flashcards cover key concepts from the lecture on leases, pensions, and income taxes.

Lease

A contract between an owner of an asset (lessor) and a party desiring to use the asset (lessee).

Lessor

The owner of an asset in a lease agreement.

Lessee

The party desiring to use the asset in a lease agreement.

Capital Lease

A lease where an asset and liability are recorded on the lessee’s balance sheet.

Operating Lease

A lease treatment that is 'off balance sheet' with no asset or liability recorded.

Finance Lease

A lease classification that requires the recording of an asset and liability on the lessee’s financial statements.

Present Value of Lease Payments

The value of the total lease payments discounted back to their present value.

Amortization Expense

The periodic allocation of the cost of an intangible asset over its useful life.

Projected Benefit Obligation (PBO)

The company's obligation to pay current and former employees, based on projected future payments.

Defined Contribution Plan

A pension plan where the company makes periodic contributions to an employee’s account.

Defined Benefit Plan

A pension plan where the company makes payments to an employee after retirement based on predefined criteria.

Funded Status of Pension Plan

Determines whether pension plan assets are less than, greater than, or equal to pension liabilities.

Deferred Tax Liabilities

Arise when taxable income is less than financial income due to temporary differences.

Temporary Differences

Differences between income reported under GAAP and taxable income due to timing.

Permanent Differences

Differences that do not reverse and affect either GAAP or tax but not both.

Net Pension Asset

Reported when funded status is positive, indicating the pension plan assets exceed liabilities.

Net Pension Liability

Reported when funded status is negative, showing pension plan liabilities exceed assets.

Interest Expense

The cost incurred by an entity for borrowed funds, typically calculated based on outstanding debt.

Depreciation

The systematic allocation of the cost of an asset over its useful life.

Cash Flow

The net amount of cash being transferred in and out of a business.

Income Tax Expense

The total amount of income tax that a company is obligated to pay based on its taxable income.

Accounting Treatment

The methodology and procedures used to record financial transactions.

Lease Liability

The present value of future lease payments to be made by the lessee.

Amortization

The gradual reduction of an intangible asset's value on the balance sheet.

Lease Payment

Regular payments made by the lessee to the lessor over the lease term.