Acc 541 - Week 3 - Individual Assignment - Final
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- Date Submitted: 04/03/2012 07:57 PM
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results of Lease research
Lease financing is a significant means of procuring funds for businesses seeking to acquire asset items. Consequently, this leasing has specific implications to the transportation industry. In the United States, “more than half of all investment in equipment and software is currently being acquired under leases,” (Equipment Financing and Leasing Foundation, 2007). A clear understanding of the accounting concepts regarding operational strategies will help our client maintain operational flexibility, and mitigate strategic risks, through a period of fast growth.
The Finance Accounting Standards Board (FASB), in 1976, issued its initial statement regarding reporting of leases within its Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. SFAS 13 defines operating leases and capital, as follows: a “lease is a financing transaction called a capital lease if it meets any one of four specified criteria; if it is not, it is an operating lease” (Summary of Statement No. 13, 1976.). These four criteria are:
• “The lease contains a bargain purchase option;
• The lessee assumes ownership of the asset at the end of the lease term;
• The present value of lease payments is equal to, or exceeds, 90% of the leased asset’s fair value;
• The lease term equals, or exceeds, 75% of the leased asset’s estimated economic life, unless the lease begins within the last 25% of the leased asset’s economic life,” (Statement of Financial Accounting Standards No. 13, 1976).
An operating lease is one that does not meet any of these four criteria. For lessees, operating “leases are treated as current operating expenses; for lessors, a financing transaction lease is classified as a sales-type, direct financing, or leveraged lease,” (Summary of Statement No. 13, 1976).
A “sales-type, direct financing, or leveraged lease…must meet one of...
to: Professor
from: Student
subject: client request i
date: date
results of Lease research
Lease financing is a significant means of procuring funds for businesses seeking to acquire asset items. Consequently, this leasing has specific implications to the transportation industry. In the United States, “more than half of all investment in equipment and software is currently being acquired under leases,” (Equipment Financing and Leasing Foundation, 2007). A clear understanding of the accounting concepts regarding operational strategies will help our client maintain operational flexibility, and mitigate strategic risks, through a period of fast growth.
The Finance Accounting Standards Board (FASB), in 1976, issued its initial statement regarding reporting of leases within its Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. SFAS 13 defines operating leases and capital, as follows: a “lease is a financing transaction called a capital lease if it meets any one of four specified criteria; if it is not, it is an operating lease” (Summary of Statement No. 13, 1976.). These four criteria are:
• “The lease contains a bargain purchase option;
• The lessee assumes ownership of the asset at the end of the lease term;
• The present value of lease payments is equal to, or exceeds, 90% of the leased asset’s fair value;
• The lease term equals, or exceeds, 75% of the leased asset’s estimated economic life, unless the lease begins within the last 25% of the leased asset’s economic life,” (Statement of Financial Accounting Standards No. 13, 1976).
An operating lease is one that does not meet any of these four criteria. For lessees, operating “leases are treated as current operating expenses; for lessors, a financing transaction lease is classified as a sales-type, direct financing, or leveraged lease,” (Summary of Statement No. 13, 1976).
A “sales-type, direct financing, or leveraged lease…must meet one of...