week 3 Response to Client Request

week 3 Response to Client Request - Response to Client...

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Response to Client Request one Jeena Cao ACC/541 Dave Brunstein October 16, 2010 Memo To: Supervisor of KTT Regional Trucking, Inc. From: Accounting team Re: Trailer Leasing The purpose of this memo is to notify you information about the Financial Accounting Research System (FARS) leasing standards, and to suggest an approach the client can use to evaluate and capitalize their leasing option. This memo will discuss the qualification of capital leases, direct financing, sales-type, and operating leases. A capital lease shifts most of the liabilities, which are benefits and risks of the ownership, from the lessor to the lessee. For a lease to be considered a capital lease, it must meet one of the four criteria, which are 1) the lease transfers ownership from the lessor to the lessee at the end of the lease term, 2) the lessee has an option to purchase the asset at a bargain price at the end of the lease term, 3) the term of the lease is 75% or more of the economic life of the asset, or 4) the present value of the lease is 90% or more of the fair market value of the asset (Financial Computer Systems, 2007). When a lease is classified as a capital lease, it will either be categorized as a direct financing or sale type lease. If a lease does not meet the requirement to be
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  • Spring '06
  • Schroeder, Clark & Cathey, sale type lease

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