Week 5, DQs - Week 5, DQ 1 What are the advantages of...

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Week 5, DQ 1 What are the advantages of operating and capital leases? What are the disadvantages? Why would a company pick one over the other? There are two basic lease accounting methods: the operating method and the capital lease method. In the operating method, the leased asset stays as a property of the lessor, and lease payments are recognized as a rental expense. Under the capital lease method, the lease is treated as a “credit purchase”, where the lessee is allowed to recognize depreciation of the leased asset. A capital lease is also referred to a conditional sales contract. An advantage of a capital lease is that the lessee gets to pay for the asset over a set period, without the need to take out a loan to pay for the asset. Another advantage of a capital lease is that the lessee acquires and is allowed to use the asset almost immediately. Other advantages of leasing are: the full cost of the asset is allowed to be written-off, assets can be changed quicker than purchasing the asset, and favorable tax advantages. Some disadvantages of leasing include higher interest rates than a straight purchase,
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This note was uploaded on 01/12/2011 for the course ACCTING Acc423 taught by Professor Rob during the Spring '10 term at DeVry Long Beach.

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Week 5, DQs - Week 5, DQ 1 What are the advantages of...

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