ACC306PAPERLeases - Running Head LEASES Page 1 Leases...

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Running Head: LEASES Page 1 Leases Kenroy Fletcher Intermediate Accounting II Mark Taylor December 19, 2011 Leases
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A lease is basically an agreement between the owner who is often referred to as a lessor and the person who uses the equipment, vehicle, land, home, or an apartment. The person who uses the property is called the lessee. The lessor and the lessee have a contract binding the agreement. A typical lease spells out all of the terms involved in a land or merchandise rental agreement, including the length of time a lessee may use it and what condition it must be in upon return to the lessor. The amount of payments and any financial penalties for late payments may also be included in a lease contract. Some people (me for example) have many years of experiencing a lease between myself as a tenant and landowner (apartment complex). This is an example of an operating lease in the accounting world. Leasing an apartment has several distinct advantages over renting or buying property. Because landlords can depend on many months of income, a lease often costs less than a rental over the same period of time. Tenants who lease may forgo some of the responsibilities of homeowners, including paying property tax, performing basic maintenance and ensuring that the property meets building and fire codes. Finally, leasing an apartment doesn't require a large down payment, which allows tenants to live in cities or regions where they may be unable to afford homes. However, when you are leasing an apartment you are paying rent which is not gaining anything on you end. Once the lease is over, you can either renew the lease for another year or move to another place to live. The only time you have an option to buy the property of home is if you originally have the agreement of lease with the option to buy. In the business world, many companies are encouraged to lease with tax incentives and other considerations to improve their business. Most companies who are usually start-up new companies lease equipment, vehicles, and offices. This relieves some of the normal responsibilities that they would assume if they were to buy or own the property. In some types of
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leases, these companies do have the option to purchase the property at an amount agreed between both parties. For example, when leasing a vehicle, the lessee has the option at the end of the lease to purchase the vehicle or return it to the dealership (lessor). Many times, the lease payments on vehicles, equipment, offices, or apartments are more affordable than if you were purchasing it yourself. However, if there is any damage to the property; the lessee is responsible for all repairs. Leasing a vehicle instead of purchasing one gives the consumer a chance to have all of the latest toys and extras in the vehicle that they are driving and also be able to change into something a little better in other areas such as safety, size, as well as affordability. Another benefit to leasing a vehicle is the flexibility in the financial burden. There are several options that
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ACC306PAPERLeases - Running Head LEASES Page 1 Leases...

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