{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}


Intermediate_Accounting_Chapter21 - 1460T_c21.qxd 03:45 am...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Learning Objectives After studying this chapter, you should be able to: 1 Explain the nature, economic substance, and advantages of lease transactions. 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee. 3 Contrast the operating and capitalization methods of recording leases. 4 Identify the classifications of leases for the lessor. 5 Describe the lessor’s accounting for direct-financing leases. 6 Identify special features of lease arrangements that cause unique accounting problems. 7 Describe the effect of residual values, guaranteed and unguaranteed, on lease accounting. 8 Describe the lessor’s accounting for sales-type leases. 9 List the disclosure requirements for leases. C H A P T E R T W E N T Y O N E A C C O U N T I N G F O R L E A S E S Leasing has grown tremendously in popularity. Today it is the fastest growing form of cap- ital investment. Instead of borrowing money to buy an airplane, computer, nuclear core, or satellite, a company makes periodic payments to lease these assets. Even gambling casinos lease their slot machines. Of the 600 companies surveyed by the AICPA in 2004, 575 disclosed lease data. 1 A classic example is the airline industry. Many travelers on airlines such as United , Delta , and Southwest believe these airlines own the planes on which they are flying. Often, this is not the case. Here are the lease percentages for the major U.S. airlines. More Companies Ask, “Why Buy?” 1087 0 Source: Company reports, 2004. 300 600 900 1200 25% American 35% Delta The Phantom Fleets: Number of Aircraft and Percent Carried Off the Balance Sheet 43% 41% 21% Northwest UAL Southwest Fleet Under Operating Leases Fleet Owned As you will learn, airlines lease many of their airplanes due to the favorable accounting treatment they receive if they lease rather than purchase. 1 AICPA, Accounting Trends and Techniques—2004. Eight out of 10 U.S. companies lease all or some of their equipment. Companies that lease tend to be smaller, are high growth, and are in technology-oriented industries (see www.techlease.com ).
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
THE LEASING ENVIRONMENT Aristotle once said, “Wealth does not lie in ownership but in the use of things”! Clearly, many U.S. companies have decided that Aristotle is right, as they have become heav- ily involved in leasing assets rather than owning them. For example, Illustration 21-1 shows the growth in leasing transactions from 1990 to 2003. Our opening story indicates the increased significance and prevalence of lease arrange- ments. As a result, the need for uniform accounting and informative reporting of these transactions has intensified. In this chapter we look at the accounting issues related to leasing. The content and organization of this chapter are as follows. PREVIEW OF CHAPTER 21 ACCOUNTING FOR LEASES Who are players?
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}