A. Firms with lower effective tax rates were found to have a higher proportion of leased debt to total assets than did firms with higher effective tax rates. Some lease agreements are in-substance long-term installment purchases of assets that have been structured to gain tax or other benefits to the parties. Since leases may take different forms, it is necessary to examine the underlying nature of the original transaction to determine the appropriate method of accounting for these agreements. That is, they should be reported in a manner that describes the intent of the lessor and lessee rather than the form of the agreement.…
This memo includes research on leases and lease structure. Through intensive research on the Financial Accounting Standards Board (FASB), three sub-types of leases were found for lessors to account for the leases. The three sub-types are direct financing, sales-type, and operating leases. The international accounting standards board (IASB) and FASB are proposing a draft for lease accounting. The critics are disputing some of the concerns with operating lease financial reporting. This memo will address the proposal changes for operating leases. Also included is a lease type recommendation for the client.…
installments as debit to fixed assets and also the capital lease as credit to obligation.…
According to our book the two major types of leases are capital lease and operating lease. Capital lease also known as financial lease is where the “lessor aims to lease an asset for virtually all its economic life” (Cleverly, 2011)and the lessee is committed to make these payments for the whole lease period. Operating lease involves equipment and this is a lease that is for a shorter period than the equipment’s lifespan, the lifespan is determined by depreciation value, and this lease is usually cancelable.…
The Financial Accounting Standards Board (FASB) website contains accounting information and is a good source for data pertaining to any issue. Answers to the information in question to leases and lease structure issues were found on the FASB website. Research was primarily focused on three lease types, direct financing, sales type, and operating leases. The information recovered can be used by the client in the evaluation and capitalization of the new customer.…
Operating leases are a way to avoid on-balance sheet debt to make financial statements look more appealing (Fülbier, Silva & Pferdehirt, 2006, p. 1). Beattie,…
If one of these criteria is met, you would have the ability and obligation to characterize these as capital leases. This treatment would result in placing the leases on your balance sheet as assets, classifying the revenue as unearned (liability), recognizing revenue once the lease proceeds are received, and depreciating the assets…
1) The standards and rules that are recognized as a general guide for financial reporting are called __________.…
Use the following information to perform the calculations below (using the indirect method). Clearly label the amount of each answer as positive or negative and show all your calculations.…
An operating lease is a lease which the manufacture provides the equipment, financing and maintenance. With this type of lease the organization pays the lessor in two different ways, either under conventional terms of…
Federal Trade Commission. (2009, February). CVS Caremark Settles FTC Charges:Failed to Protect Medical and Financial Privacy of Customers and Employees. Retrieved from http://www.ftc.gov…
AES may not be required to report any of the project debt on its balance sheet because such debt is non-recourse. Off balance sheet treatment can have the added practical benefit of helping the AES comply with covenants and restriction relating to borrowing funds contained in loan agreements to which AES is also a party.…
The Business Balance Sheet completely outlines the company; it includes the breakdown of assets and liabilities. It then transfers that to the owner’s equity. It will show debts that need to be addressed, if sales or profits need to be increased and overall if the company is in good standing or not. I would use the return on owner’s equity financial ratio to interpret the data. Taking the income after taxes and dividing it by the owner’s equity. I would be aiming for a higher return.…
• Treat the assets under operating leases as if they were purchased on a given date and then depreciated using the same policy as purchased operating assets of the same type. • The funding of these operating leases is the PV of the lease payments AT THE INCEPTION OF THE LEASE…….hence LEASE h • The Operating Asset = Financing liability only at the start of the lease (and at the end when both will be zero) • The rental payment is a cash payment for funding which is split between interest (first) then repayment of principal…..JUST LIKE ANY BOND • The economic expense is then both “depreciation” of the operating asset AND the interest expense on the outstanding balance of the “lease-based” borrowing. borrowing • Going forward you acquire operating assets and then decide how to fund them (cash, borrow outright or borrow from leasing) These are the key things to understand for the whole process (which can get vey complicated)…
However, in case of long-term lease contracts, the lessee is generally given the option to buy the leased asset or renew the lease contract. The three major types of leases are the operating lease, financial/capital lease and the direct financing lease. The operating lease is a short-term lease contract where the lessor bears all operating and repairing costs of the asset and the lessee pays periodic rental payments to the lessor, and where the lease is cancelable, and there is no bargain purchase option. Financial/capital lease is a long-term lease contract where the lessee bears all operating, repairing and maintenance costs, and makes periodic rental payments to the lessor. The lease is not cancelable and the lessee has the option for bargain purchase or renewal of lease contract at the end of the original lease period. In a direct financing lease, the lessor leases the asset by manufacturing or by purchasing from the manufacturer to the lessee directly and the lessee makes regular rental payments to the lessor. The lessor holds the ownership of the asset until the end of the lease period and the lessee holds the possession of the asset. In addition to these major types, there are some other types of lease such as sale and lease and leveraged lease.…