and the leasing company is posses actually ownership of the equipment. Peyton’s will see a decrease in return on assets, and asset turnover as a result of the increase on the balance sheet. As a result of the additional liability on the balance sheet Peyton’s liabilities to equity ratio will be affected. Overall the effect of the capital lease give the appearance of decreased or poor performance to investors and potential investors [Mernd1]. At the end of six years Peyton’s will own the equipment, but it is not guaranteed
Executive Summary 4 to have any value left in them [Wah17]. Accountants must also be aware of modifications made to the asset as the lessor will need to capitalize any improvements and depreciated them over the life of the lease. Cash allowances for improvements are treated as a reduction of the lease payment and amortized during the lease[Lumnd]. Leasing allows for more growth of a company as a result of the less capital intense than purchasing. The risk associated with the assets is on the lessor not the lessee, and the lease payments being expenses rather than an assets has a counter effect on taxes reducing the tax liability of a company [Lumnd]. Financial Impact of Post Retirement Plans Pensions and other postretirement benefits healthcare is one of the biggest ones are provided to employees once they retire. Pension cost are known and can be accounted for with ease as the amount and time period is known. The revision of Peyton’s addition of healthcare to it’s retirees will have both short and long term effects as discussed below. Short term GAAP requires h a company to accrue the cost of healthcare cost ( OPEB ) while still employee with the company and recognize the $43,718.91 as both an expense and a liability. The $43,718.91 is an expected postretirement benefit obligation (EPBO) and not accumulates postretirement benefit obligation (APBO). The amount of EPBO is the attributed value of an employee up to current date from the service computation date. Once the employee is retired the EPBO and APBO contain identical values [Wah17] . A company usually not funding the plan, therefore it is increasing expenses. The company will make payments to the retiree to reduce the balance in the expense account. Peyton’s will also be require to report the change in financial statements oif publicly traded.
Executive Summary 5 Long Term Healthcare in post-retirement is considered a liability since it is a future sacrifice of the asset. It is also argued that it does not have the same legality as pension since continued healthcare benefits may not be formally addressed in a contract. Current law does not allow companies to discount OPRB benefits from retired employees and makes it difficult to discount benefits are already earned. The $43,718.91 is an expected
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- Fall '15
- Balance Sheet, Generally Accepted Accounting Principles, Peyton