Lease

1196 words 5 pages
Show More
To: Boss Man, CEO, Sable Inc.
From: Kyle May
Date: April 7, 2016
Subject: Deal for a Dozer

Relevant facts * Sable is a company that manufactures and supplies earthmoving and construction equipment. * Sable sells and leases equipment to its customers. * Sable entered into a contract with Buildit Co. leasing a bulldozer for construction. * The lease term is 10 years and the economic and useful life of the bulldozer is 15 years. * Annual lease payments due at the end of every year will be $16,000. * Buildit is responsible for maintenance, insurance, and tax payments arising from the lease. * The residual value of the bulldozer at the end of the lease term is estimated at $24,000, although no …show more content…

(ASC 842-30-35-12(a)) In determining the type of lease, the only possible condition that could make it anything other than an operating lease is if the minimum lease payment is 90% or greater of the fair value of the asset. An issue at hand is whether to use a fair value of $135,000, the price they normally sell the asset for, or a fair value of $125,000, the price Sable’s competitors have recently been selling the same asset for.

Conclusions and Authoritative Reasoning: * In calculating the fair value of the asset FASB summary 13-5-c-i says to use current economic circumstances in the calculations, so in calculating the present value of the MLP you would use $125,000. * Using the implicit rate of 6.93%, the open market present value of the bulldozer of $125,000, and the un-guaranteed residual value of $24,000 the present value of the minimum lease payments equal $125,000 (the open market value of the bulldozer.) * According to ASC 850-10-25-1(d) if the minimum lease payments, excluding executor costs, equals or exceeds 90% of the excess of the present value of the leased asset then it will be considered a capital lease. * Because the minimum lease payments are greater than 90% of the open market present value of $125,000 and a residual future value of $24,000 it should not be considered an operating lease. * The cost for Buildit to create the bulldozer was

Related

  • Synthetic Leases
    3547 words | 15 pages

    synthetic leases. We also know synthetic lease transactions are relatively commonplace for financing corporate build-to-suits and acquisitions, and that they are widely accepted by corporate real estate executives, financial institutions, and accounting firms. But is the synthetic lease a panacea for the corporate executive faced with a leasing decision? Are they the perfect solution for keeping real estate assets oil the company balance sheet? Are there any drawbacks to a synthetic lease? Before entering….

    Show More
  • Lease Agreement
    2095 words | 9 pages

    Contract-Lease Assignment This Residential Lease Agreement (hereinafter “Lease”) is entered into this the 10-01-11, by and between the Lessor: George Murphy, (hereinafter referred to as “Landlord”), and the Lessee(s): Benjamin Potter for the Potter Corporation. All Lessees (hereinafter referred to collectively as “Tenant”), are jointly, severally and individually bound by, and liable under, the terms and conditions of this Lease. 1. GRANT OF LEASE: Landlord does hereby lease unto Tenant….

    Show More
  • Land Lease
    2000 words | 8 pages

    . Introduction LandLease (Asia) Property Limited (LL) wants to infiltrate the Hong Kong real estate sector. Louisa Martin and her senior advisor Marco Li have two main possibilities to achieve this goal, direct and/or indirect investment. By investigating the different investment possibilities they want to understand the merits and demerits, including risk and return of the possible investments. Bearing these outcomes in mind, they can form a new strategy for the company. We will discuss 4 different….

    Show More
  • Discussion of Ias 17 Leases
    2332 words | 10 pages

    ASB-3211 Advanced Accounting Theory & Practice Assignment: Discussion of IAS 17 Leases Huixuan HUANG Student ID: 500284151 Module Organizer: Colin Bradley Words Count: 1964 words Date of Submission: 17th April, 2012 Discussion of IAS 17 Leases Introduction Accounting for leasing is always being a hot topic. The standard setters of IAS 17 encountered much controversy when they tried to stop charging all lease payments to the income statement. In this essay, firstly, I will point out the….

    Show More
  • Amg/Forsythe: Lease vs. Buy
    1613 words | 7 pages

    AMG/Forsythe: Lease vs. Buy AMG Inc, a Fortune 500 financial services company, is implementing 7,542 new PCs in the time frame of twelve months in multiple locations covering eight states. This is a $7.5 million technology financing decision which needs to be investigated. The current decision that Adam Stolz, controller for the CFO, faces is whether AMG should lease or buy the new PCs. Also, he is under pressure from the CEO to keep the transaction off of the balance sheet, in which case the….

    Show More
  • Capital Budgeting
    2489 words | 10 pages

    accounting for operating leases is quite simple. Because an organization does not own the asset, it is not recorded on the firm’s balance sheet. The only effect that an operating lease has on organization’s financial statements is the lease payments will appear as an operating expense on the entity’s income statement. Since an operating lease is not recorded on the balance sheet, it is sometimes referred to as off balance sheet financing. The main advantage of an operating lease is that the organization….

    Show More
  • Bus
    1258 words | 6 pages

    1. Law and the Impact on Business Leases You are a skateboard designer and decide to open a shop. You find a “perfect space” in a local mall and agree to sign a one-year lease agreement that runs from January 1 through December 31. The lease agreement specifies that the lease cannot be assigned without the mall’s consent. In late June, you decide that this space is not attracting enough customers, so you decide to assign the balance of your lease to Jennifer Beeswax, who owns a candle shop.….

    Show More
  • Restucturng
    1668 words | 7 pages

    to a new facility in a different geographic area. The relocation plan would include terminating certain employees (research and development employees). On December 15, 201X, Pharma issued a press release announcing its intentions to terminate the lease of the old facility. On December 27, 201X, Pharma management communicated….

    Show More
  • Innovative Ways of Attracting and Retaining Good Quality Tenants
    6234 words | 25 pages

    TITLE: INNOVATIVE WAYS OF ATTRACTING AND RETAINING GOOD QUALITY TENANTS. BACKGROUND The evolution of the commercial property market with trends like shorter lease lengths and competition for new tenants in the market for example, means that landlords can no longer rely on traditional ways of attracting and retaining tenants. According to Rasila, H. (2010), “the competitive environment is changing and the real estate owners are seeking new ways of differentiating themselves from competitors”. Traditionally….

    Show More
  • Accounting Decision Analysis Report
    8732 words | 35 pages

    Case Study Report Accounting (Decision Analysis) 308 [pic] Lecture: Adrian Melia Tutor: Rajni Mala Tutorial Time: 9am-11am (Wednesday class) DUE DATE: 12/09/08 table of Content Executive Summary 3 Executive Summary 4 Introduction 5 Introduction 6 SWOT ANALYSIS 7 SWOT Analysis 8 Common-size analysis 10 Balance sheet and common size analysis from2005-2008 11 Common-size analysis 23 Accounting Analysis 25 EVAL Ratio Analysis 35 Appendix: Financial Statements of….

    Show More

Popular Essays