Date: July 18, 2011
3 Subject: Leases and Lease Structure Issues
4 To: Regional Trucking Company
5 From: Bob Stanton
This memo will cover the current practice and thought related to direct financing, sales type, and operating leases. I understad that Regional Trucking Company have limited time to cover all aspects of these areas.
Disclosure Requirements for Capital Leases SFAS No. 13 also requires the disclosure of additional information for capital leases. The following information must be disclosed in the lessee’s financial statements or in the accompanying footnotes: 1. The gross amount of assets recorded under capital leases as of the date of each balance sheet presented by major classes according to nature or function 2. Future minimum lease payments as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years 3. The total minimum sublease rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented 4. Total contingent rentals (rentals on which the amounts are dependent on some factor other than the passage of time) actually incurred for each period for which an income statement is presented.
The lessor should report a lease as a sales-type lease when at least one of the capital lease criteria is met, both lessor certainty criteria are met, and there is a manufacturer’s or dealer’s profit (or loss). Major steps are involved in accounting for a sales-type lease by a lessor. The amount to be recorded as gross investment is the total amount of the minimum lease payments over the life of the lease, plus any unguaranteed residual value accruing to the benefit of the lessor. Once the gross investment has been determined, it is to be discounted to its present value using an interest rate that causes the aggregate present value at the beginning of the lease term to be equal to the fair value of the leased property. The...