Accounting for Leases Essay

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With the fact presented, the client was approach by a new customer with an opportunity that would require the client to have 120 trailers. The client’s current trailer count is 100 that are 20 less than the required amount. With the potential for significant growth, there is also the uncertainty of how long the relationship with the customer will last. The purpose of this memo is to provide the different leasing options and structures according to the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) that the client can engage into execute efficiently the job required by the new customer. Besides the leasing options, the memo would also provide the impact the leasing options will have on the client as well as recommendation on an approach that the client can use to evaluate and capitalize on the opportunity. The three types of lease that the client should be considering for the opportunity are direct financing leases, sales type leases, and operating leases. Direct financing leases is a type of capital lease, and it refers to when the lessor of the leased property bought the property for the intent of leasing. The lessor is not the manufacturer or the dealer of the leased property. For a lease to be classify as a direct financing lease, there are a few criteria that the lease has to meet. According to ASC 840-10-25-43, the criteria are such of the four criteria for capital lease, the lease does not give rise of loss or profit of the manufacturers or dealers to the lessor of the leased property, and so on (FASB, 2009.) The ASC 840-30-25-7 specify that the lessor should recognize the gross investment of the leased property into the lease and unearned income of the financial statements (FASB, 2009.) According to ASC 840-30-50-4, in the balance sheet, the client would need to disclose the required information in relates to the

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