January 13, 2014
To: Supervisor CC: Client From: Cayce Harris Date: 1/13/2014 Re: Client Request
As requested, the following information was pulled directly from the FASB’s website in regards to Direct Financing leases and Sales-Type leases from a lessors prospective. The following describes what the lessor is responsible for when entering into and obtaining each type of lease. In order for the lessor to establish the lease as one of the above, the lease must meet one of the four criteria that determine the lease as a capital leases for the lessee.
Gross Investment in a Sales-Type Lease or Direct Financing Lease
30-6 …show more content…
The minimum lease payments net of amounts, if any, included therein with respect to executory costs (such as maintenance, taxes, and insurance to be paid by the lessor) including any profit thereon
• b. The unguaranteed residual value accruing to the benefit of the lessor. The estimated residual value used to compute this amount shall not exceed the amount estimated at lease inception except as provided in paragraph 840-30-30-7.
30-8 The lessor 's net investment in a sales-type lease shall consist of the gross investment (as measured in paragraph 840-30-30-6) minus the unearned income.
30-9 The lessor shall measure unearned income initially as the difference between the gross investment in the sales-type lease and the sum of the present values of the two components of the gross investment. The discount rate to be used in determining the present values shall be the interest rate implicit in the sales-type lease.
30-10 The present value of the minimum lease payments (net of executory costs, including any profit thereon), computed at the interest rate implicit in the lease, shall be recorded by the lessor as the sales price.