Essay on Response to Client Request I

845 Words Jan 28th, 2011 4 Pages
Response to Client Request I
Sharon Sherman
December 20, 2010
Rebecca Kime

Response to Client Request I
Research has been performed for your client to give informative information about leases and lease structures. Through this research there are three sub-types of leases from the standpoint of the lessor, which are direct financing leases, sales-type leases, and operating leases. The information found on the Financial Accounting Standards Board website pertaining to each type of lease will guide your client to making an appropriate decision regarding which type of lease will be beneficial to their company.
The first sub-type lease from the standpoint of the lessor is a direct financing lease. To be classified as a
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The second sub-type lease is a sales-type lease. This lease should be recorded as a sales-type lease when there is a manufacturer’s or dealer’s profit or loss. This type of lease implies that the leased asset is an item of inventory and the seller is earning a gross profit on the sale. The sales-type lease is often occur when manufacturer or dealer using leasing as a means of marketing their products. For sales-type leases, because the critical event is the sale, the initial direct costs associated with obtaining the lease agreement are written off when the sale is recorded at the inception of the lease. These costs are disclosed as selling expenses on the income statement.
Then thirdly, the operating lease is when the lessor depreciates the leased asset according to its depreciation policy. The maintenance costs of the leased asset are charged as an expense, the costs, such as finder’s fees and credit checks, are amortized over the lease term, and the leased equipment and accumulated depreciation are shown as equipment leased to others. Usually any lease that do not fall under the criteria for a direct financing lease or sales-type lease are recorded as an operating lease.
To determine which of the lease options above is best for your client the benefits such as profit and appropriate write-offs should be evaluated. The sale-type lease would not address the needs of your client because the proposed transaction by your client
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