Many businesses lease substantial portions of the property anclease

Many businesses lease substantial portions of the property anclease

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Many businesses lease substantial portions of the property and equipment they use as an alternative to ownership, because leasing provides some financial, operating, and risk advantages over ownership. Leasing allows for 100% financing, protection against obsolescence, flexibility, less costly financing, off balance sheet financing, and tax advantages. A lease is a contractual arrangement between a lessor and a lessee that gives the lessee the right to use specific property for a specified period of time in return for periodic cash payments to the lessor. Accounting by the lessee: Assume Lessee enters into a 4-year lease contract to lease a computer. Annual rentals of $17,208 are to be paid at the beginning of each year. Lessee’s incremental borrowing rate is 10%. If this is classified as an operating lease, Lessee would report Rent Expense of $17,208 on its income statement in the first year and report nothing about leases on its balance sheet. If this is classified as a capital lease, Lessee would have an asset and
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This note was uploaded on 04/21/2010 for the course ACCT 621 taught by Professor Crotter during the Spring '10 term at UPenn.

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Many businesses lease substantial portions of the property anclease

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