Log in
Accounting
1
answer
0
watching
126
views
3 Dec 2018

What are the advantages to a lessee in leasing rather thanpurchasing property?

Watch
1
answer
0
watching
126
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Sixta Kovacek
Sixta KovacekLv2
5 Dec 2018

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Choose the correct answer

28. Major reasons why a company maybecome involved in leasing to other companies is (are)

a. interest revenue.

b. high residual values.

c. tax incentives.

d. All of these answers are correct.

29. Which ofthe following is an advantage of captive leasing companies over theother players in the leasing market?

a. They have access to low-cost funds allowing themto purchase assets at lower cost.

b. They are good at developing innovative contractsthat help avoid accounting problems.

c. They provide leasing arrangements for a widerrange of products than the parent company’s product line.

d. They have the paint-of-sale advantage in findingleasing customers.

30. Which ofthe following best describes current practice in accounting forleases?

a. Leases are not capitalized.

b. Leases similar to installment purchases arecapitalized.

c. All long-term leases are capitalized.

d. All leases are capitalized.

31. While only certain leases arecurrently accounted for as a sale or purchase, there is theoreticjustification for considering all leases to be sales or purchases.The principal reason that supports this idea is that

a. all leases aregenerally for the economic life of the property and the residualvalue of the property at the end of the lease is minimal.

b. at the end of thelease the property usually can be purchased by the lessee.

c. a lease reflects thepurchase or sale of a quantifiable right to the use ofproperty.

d. during the life of thelease the lessee can effectively treat the property as if it wereowned.

Discuss the advantages and disadvantages of leasing a buildingversus purchasing one.

Trost Leasing Company buys equipment for leasing to variousmanufacturing companies. On October 1, 2007, Trost leases a pressto Shumway Shoe Company. The cost of the machine to Trost was$196,110, which approximated its fair market value on the leasedate. The lease payments stipulated in the lease are $33,000 peryear in advance for the 10-year period of the lease. The paymentsinclude executory costs of $3,000 per year. The expected economiclife of the equipment is also 10 years. The title to the equipmentremains in the hands of Trost Leasing Company at the end of thelease term, although only nominal residual value is expected atthat time. Shumway’s incremental borrowing rate is 10%, and ituses the straight-line method of depreciation on all ownedequipment. Both Shumway and Trost have fiscal years endingSeptember 30, and lease payments are made on this date.Instructions: 1. Prepare the entries to record the lease and thefirst lease payment on the books of the lessor and lessee, assumingthe lease meets the criteria of a direct financing lease for thelessor and a capital lease for the lessee. 2. Compute the implicitrate of interest of the lessor. 3. Give all entries required toaccount for the lease on both the lessee and lessor's books for thefiscal years 2008, 2009, and 2010.

Related Documents

ACC 333 Lecture Notes - Hire Purchase, Finance Lease, Office Supplies
jadekoala897
ACC 211 Lecture Notes - Lecture 3: Intangible Asset, Fixed Asset, Balance Sheet
silverchimpanzee364

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in