whether to accept an offered leasing contract for the duration of three years. In the event of acceptance of the above-mentioned contract‚ the profits of the company would depend on the agreed hire rates‚ operating costs‚ ship depreciation and inflation. After the closure of thecontract‚ further income would be evaluated based on expected market daily hire rates. The conditions for the proposed lease are shown in exhibit 1. Statement of problem The duration of the leasing contract is quite short so
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do not produce debtor/creditor relationships‚ but instead are accounted for as lease agreements. These are designated operating leases. Learning Objectives 1. Identify and describe the operational‚ financial‚ and tax objectives that motivate leasing. 2. Explain why some leases constitute lease agreements and some represent purchases/sales accompanied by debt financing. 3. Explain the basis for each of the criteria and conditions used to classify leases. 4. Record all transactions associated
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CHAPTER 21 Accounting for Leases ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis *1. Rationale for leasing. 1‚ 2‚ 4 1‚ 2 *2. Lessees; classification of leases; accounting by lessees. 3‚ 5‚ 7‚ 8‚ 14 1‚ 2‚ 3‚ 4‚ 5 1‚ 2‚ 3‚ 5‚ 7‚ 8‚ 11‚ 12‚ 13‚ 14 1‚ 2‚ 3‚ 4‚ 6‚ 7‚ 8‚ 9‚ 11‚ 12‚ 14‚ 15‚ 16 1‚ 2‚ 3‚ 4‚ 5‚ 6 *3. Disclosure of leases. 19 2‚ 4‚ 5‚ 7‚ 8 2‚ 3‚ 5 *4. Lessors;
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adverse change” in its financial condition. “Material adverse change” is not defined in the loan documents. The Company believes the likelihood of default is remote. The bank has no relationships with Goliath Co. (Note: This is a customary provision in leasing arrangements.) Provision 3 The lease agreement stipulates that Big Bear’s annual lease payments shall be $1 million per year‚ payable ratably over 12 months at the beginning of each month. For each calendar year of the term of the lease after 2005
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MEMO Date: July 18‚ 2011 3 Subject: Leases and Lease Structure Issues 4 To: Regional Trucking Company 5 From: Bob Stanton This memo will cover the current practice and thought related to direct financing‚ sales type‚ and operating leases. I understad that Regional Trucking Company have limited time to cover all aspects of these areas. Disclosure Requirements for Capital Leases SFAS No. 13 also requires the disclosure of additional information for capital leases. The following
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Introduction Accounting for leases is regulated by the Financial Accounting Standards Board (FASB) in United States .Standards for accounting leases have been effective since 1977 (Accounting Standard Board‚ 2004). The primary standard for lease accounting is Statement of Financial Accounting Standards No. 13 (FAS 13). According to FASB (1976)‚ a lease is an agreement conveying the right to use property‚ plant‚ and equipment (PPE) usually for a stated period of time. Examples of assets that can
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and ordinary annuity PVss = $2‚000‚000 x f( n=10‚ i=10%) PVss = $2‚000‚000 x .386 = $772‚000 PVa = ($2‚000‚000 x .08) x f( n=10‚ i= 10%) PVa = $160‚000 x 6.145 = $983‚200 Price of bonds = $772‚000 + $983‚200 = $1‚755‚200 3.) Jeremy Leasing purchases and then leases small aircrafts to interested parties. The company is currently determining the required rental for a small aircraft that cost them $400‚000. If the lease if for eight years and annual lease payments are required to be made
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“At Your Service” PM598 – October 2012 Johnny Sanders You are Chris and Pat Smith‚ entrepreneurs with five years of experience investing in small businesses. Eighteen months ago you decided to invest in a catering venture with two chefs‚ J. P. Martin and L. L. Miller‚ who have culinary science degrees and five years of work experience‚ which includes winning a prestigious prize in a gourmet food competition. Following some extended discussions‚ the four of you decided to set up a business
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Exercise 23.10 70‚000 80‚000 90‚000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1‚400‚000 $1‚600‚000 $1‚800‚000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . .$840‚000 $ 960‚000 $1‚080‚000 Gross profit on sales . . . . . . . . . . . . . . . . . . . $560‚000 $ 640‚000 $ 720‚000 Operating expenses ($90
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I Use for Equipment Leasing? Leasing equipment is a common alternative to purchase. Of the two kinds of leases - capital leases and operating leases - each is used for different purposes and results in differing treatment on the accounting books of a business. Capital Leases •Capital leases are used for long-term leases and for items that not become technologically obsolete‚ such as many kinds of machinery. •Capital leases give the lessee (the person who is leasing) the benefits and drawbacks
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