Why do you say we would prefer our leases to be classified as operating leases? says your
Question:
"Why do you say we would prefer our leases to be classified as operating leases?" says your colleague in the accounting department. "I thought that with the new lease accounting rules, both operating and finance leases have to be included in our balance sheet." To aid in your explanation, you use Excel to chart the effect on the income statement of accounting for an upcoming lease transaction as a finance lease and as an operating lease. The transaction you’re using in your explanation is a lease of equipment requiring four $100,000 payments, payable at the beginning of each of the four years. The payments are based on an interest rate of 10%. It’s already been determined that you must classify the lease as a finance lease because the equipment’s useful life is estimated to be six years, but you see this as a good opportunity to compare the two approaches. Below are the questions you will ask your colleague to consider when viewing the charts.
|
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain