136C Notes 2_3_11

136C Notes 2_3_11 - 2/3/11 136C Notes -*Capitalization...

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2/3/11 136C Notes ---------------------- *Capitalization criteria for the lessee and the lessor are the SAME *Ownership >Look at whether or not the ownership qualities have been transferred. >Operating lease v Capital Lease: *Renting a car for a day, for example, is an operating lease. *Key elements of Ownership: Appreciation (val of the bldg you're renting goes up while you live there, not getting $$… residual) Depreciation 2 Liability/Risk (if the house youre renting falls into the ocean, you're not responsible… insurance) Example: 5 year car lease --> Put 500k miles --> Who deals with the residual here?! CONTINGENT RENTAL AMOUNT >>Amount you have to pay… you know where the penalty is, but not if you're going to reach it… that's why its contingent. Don’t have a number to be sure of at this point 1) Lease transfers ownership at the end 2) Lease continues as a bargain purchase option *How do we determine what a bargain purchase option is vs a regular purchase option? Bargain purchase option
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136C Notes 2_3_11 - 2/3/11 136C Notes -*Capitalization...

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