Response to Client Acc/541

In: Business and Management

Submitted By forderica
Words 777
Pages 4
Response to Client Request I
Erica R Ford
ACC/541
October 7, 2013
Professor Michael Meyer
Response to Client Request I

Memorandum

October 7, 2013

To: Raelynn Floyd, Supervisor of Standards

From: Erica Ford, CPA

Re: FASB Lease Structures and types

As per your request I have diligently conducted research to advise our clients of the best leasing option in regards to their current business proposition. Recently, I was informed last week of the new venture and the need to acquire 20 additional trailers to satisfy a job. The deal has a potential to be lucrative, therefore we must consider what leasing structure will work best for the client. The best sources to obtain information on leasing requirements and reporting is the FASB, Financial Accounting Standards Board. There are three components of leasing that I will discuss, directing financing, sales type and operating lease. Furthermore, I will make a recommendation based on the findings and current market conditions.

Direct Financing

Under the direct financing method, the lessor is essentially viewed as the lending institution for revenue recognition purposes (Schroder, Clark & Cathey). Direct financing is also considered a capital lease if it meets the criterion. To be classified as a direct financing lease the lease must meet one of the four following criteria set forth by SFAS No. 13: (1) the lease transfers ownership of the property to the lessee by the end of the lease term; (2) the lease contains bargain purchase options; (3) the lease term is equal to seventy-five percent or more of the estimated economic life of the leased property; (4) and the present value at the beginning of the lease term of the minimum lease payments equals or exceeds ninety percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related…...

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