Chapter 15 Vocabulary - Leases

Lessor

Owns leased asset and provides the right to use that asset for a specified period of time

Lessee

Receives the right to use the asset and, in exchange, makes periodic cash payments during the term of the lease

Finance Lease

Lessee has, in substance, purchased the least asset; assumed when one of five classification criteria is met

Purchase Option

A provision of some lease contracts that gives the lessee the option of purchasing the leased property during, or at the end of, the lease term at a specified price

Lease Payments

Payments the lessee is required to make in connection with the lease

Sales-Type Lease

Lessor transfers control of lease asset to lessee, with or without a selling profit on the sale of the asset

Operating Lease

Lease where the lessor retains the risks and benefits of ownership, and the lessee pays for the right to use the asset temporarily

Selling Profit

When the fair value of the asset (usually the present value of the lease payments, or “selling price”) exceeds the cost or carrying value of the asset sold

Residual Value / Salvage Value

The amount the company expects to receive for the asset (or leased property) at the end of its service life (or lease term) less any anticipated disposal costs

Residual Asset

Caring amount of a leased asset not transferred to the lessee