Lease Memo - In the final year of the schedule we must take...

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Memo To: Pioneer Company From: Ryan Brandenburg Date: April 15, 2008 Subject: Lease Amortization Schedule A lease of an asset is essentially borrowing that asset to another company for a monthly payment. The residual value of a lease refers to the fair market value the asset will have when the lease has ended. That said, when computing the lease payment the residual value cannot be included, as it will not be capitalized with the rest of the asset because our company will be getting this portion of the asset back at the end of the lease. The amortization schedule shows each payment and the amounts out of each payment that go to interest revenue, and the recovery of balance. The schedule also shows the balance after the recovery has taken place. We will be making less interest revenue in the later years because the balance is going down from the prior years payments.
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Unformatted text preview: In the final year of the schedule we must take the residual value out of the lease balance because we are getting the leased asset back at this value. The balance sheet and the income statements are affected in the lease transaction. The balance sheet is not really being affected because we are just taking one asset off the balance sheet and adding a new one to it in the form of a lease receivable for the same amount. The income statement, on the other hand is affected. As time goes by our company is gaining interest revenue and that is making out net income bigger, which is a good thing. There also may be expenses related to the lease, which we may or may not collected from the customer. If we do not collect those expenses our net income will go down....
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This note was uploaded on 04/18/2008 for the course ACCT 302 taught by Professor Borke during the Spring '08 term at Wisc Platteville.

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