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Essay / Research Paper Abstract
A 4 page memo explaining the difference between direct financing, sales-type and operating leases for accounting purposes. Currently SFAS 13 allows companies to keep some leases off their balance sheets, as noted above. Businesses prefer to keep such leases off their balance sheets; investors prefer full disclosure of a business' total liabilities. FASB announced in 2006 it would investigate (Taub, 2006); any changes to current practice will be announced in 2009. Bibliography lists 7 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSacctLease.rtf
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Unformatted sample text from the term paper:
The purpose here is to summarize findings regarding "current practice and thought related to direct financing, sales type, and operating leases." The
Financial Accounting Standards Board (FASB) issued its first statement regarding financial reporting of leases in 1976 in Statement of Financial Accounting Standards No. 13, Accounting for Leases. Statement of
Financial Accounting Standards (SFAS) 13 first defines capital and operating leases. A "lease is a financing transaction called a capital lease if it meets any one of four specified
criteria; if not, it is an operating lease" (Summary of Statement No. 13, n.d.). The four criteria are: * The lessee assumes ownership of the property at the end
of the term of the lease * The lease contains a bargain purchase option * The lease term equals or exceeds 75 percent of the estimated economic life of the
property being leased, unless the lease begins within the last 25 percent of the expected economic life of the leased property * The present value of lease payments is equal
to or exceeds 90 percent of the fair value of the leased property (Statement of Financial Accounting Standards No. 13, 1976) An operating
lease is one that does not meet any of these four criteria. For the lessee, operating "leases are treated as current operating expenses. For lessors, a financing transaction
lease is classified as a sales-type, direct financing, or leveraged lease" (Summary of Statement No. 13, n.d.). A "sales-type, direct financing, or leveraged
lease ... must meet one of the same criteria used for lessees to classify a lease as a capital lease, in addition to two criteria dealing with future uncertainties" (Summary
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