FM8e- ch18 - 18 - 1 Types of leases Tax treatment of leases...

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Unformatted text preview: 18 - 1 Types of leases Tax treatment of leases Effects on financial statements Lessees analysis Lessors analysis Other issues in lease analysis CHAPTER 18 Lease Financing 18 - 2 The lessee, who uses the asset and makes the lease, or rental, payments. The lessor, who owns the asset and receives the rental payments. Note that the lease decision is a financing decision for the lessee and an investment decision for the lessor. Who are the two parties to a lease transaction? 18 - 3 Operating lease Short-term and normally cancelable Maintenance usually included Financial lease Long-term and normally noncancelable Maintenance usually not included Sale and leaseback Combination lease "Synthetic" lease What are the five primary lease types? 18 - 4 Leases are classified by the IRS as either guideline or nonguideline. For a guideline lease, the entire lease payment is deductible to the lessee. For a nonguideline lease, only the imputed interest payment is deductible. Why should the IRS be concerned about lease provisions? How are leases treated for tax purposes? 18 - 5 For accounting purposes, leases are classified as either capital or operating. Capital leases must be shown directly on the lessees balance sheet. Operating leases, sometimes referred to as off-balance sheet financing, must be disclosed in the footnotes. Why are these rules in place? How does leasing affect a firms balance sheet? 18 - 6 Leasing is a substitute for debt. As such, leasing uses up a firms debt capacity....
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This note was uploaded on 08/29/2009 for the course FM Finance taught by Professor Unknown during the Spring '09 term at DeVry Addison.

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FM8e- ch18 - 18 - 1 Types of leases Tax treatment of leases...

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