AC 204 Study Outline

AC 204 Study Outline - AC 204 Study Outline Chapter 21:...

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Unformatted text preview: AC 204 Study Outline Chapter 21: Accounting for Leases • The Leasing Environment o Who are the Players? • Lease- a contractual agreement between the lessor and the lessee. Gives the lessee the right to use specific property, owned by the lessor for a specified period of time. Banks • Largest players • Low-cost funds o Able to purchase assets at less cost than competitors. Captive leasing companies • Subsidiaries whose primary business is to perform leasing operations for the parent company. Independents • Market share has dropped recently • Often good at developing innovative contracts • Starting to act as captive finance companies for some companies that don’t have a leasing subsidiary o Advantages of Leasing 100% Financing at fixed rates • Often no down payment • Conserve scarce cash • Fixed payments o Protection against inflation Protection against obsolescence • Lessor adds cost of new lease to old lease balance less trade-in value Flexibility Less costly financing Tax advantages Off-Balance-Sheet Financing o Conceptual Nature of a Lease Views on capitalization • Do not capitalize any leased assets o No ownership o “executory” contract requiring continuing performance by both parties • Capitalize leases that are similar to installment purchases...
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This note was uploaded on 05/07/2008 for the course AC 204 taught by Professor Any during the Spring '08 term at Fairfield.

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AC 204 Study Outline - AC 204 Study Outline Chapter 21:...

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