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Blue Steele Lease Paper

The proposal also states that both parts must

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The proposal also states that both parts must recognize the assets and liabilities on a basis that: (1) assume the longest lease term that is most likely going to happen, taking into account extensions or terminations of lease agreements. (2) Include an expected outcome technique to show lease payments, including penalties, contingent rentals, and residual value guarantees. (3) They are updated when the facts and circumstances of the lease agreement change. For agreements that include both service and lease terms, the lessee and lessor would exclude the recognition of payments relating to the distinct service terms of the agreement. (FASB, 2010) Also, there are less demanding requirements available for lease agreements that do not exceed 12 months.
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Under the proposed changes the airplane would be considered to be an owned asset by the aircraft company and included on the balance sheet accordingly. Along with the changes to the balance sheet accounts, there will be other changes to the income statement. This would lead to operating lease rental expense being replaced by the amortization of the ROU assets and interest expense on the lease liabilities. Since there is use of the effective interest rate method the interest expense would generally be greater in the earlier periods( Harding, S., & Grimando 2010).
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