This passage below require analysis and breakdown

owns the property and the person who obtains use of the property in exchange for one or more lease or rental payments is the lessee (Brigham & Ehrhardt, 2015). The two types of leases that I will compare right now are operating leases and synthetic leases.

An operating lease provides for both financing and maintenance. Generally, the operating lease contract is written for a period considerably shorter than the expected life of the leased equipment and contains a cancelation clause; sometime called a service lease (Brigham & Ehrhardt, 2015). Examples of operating leases are automobiles and trucks, as well as computers and office copying machines like when IBM started pioneering these types of leases (Brigham & Ehrhardt, 2015). An advantage of this type of lease is that it can sometimes contain a cancellation clause in the event the lease wants to give up the equipment (Brigham & Ehrhardt, 2015). A disadvantage of the operating lease is that they are never fully amortized (Brigham & Ehrhardt, 2015). In other words, the rental payments required under the lease contract are not sufficient for the lessor to recover the full cost of the asset (Brigham & Ehrhardt, 2015).

A synthetic lease a version of an operating lease in which a company established a special-purpose entity to borrow funds in the financial markets, purchase an asset with the borrowed funds, and then lease the asset to the creating company (Brigham & Ehrhardt, 2015). The advantage to these is that synthetic leases could be used to keep debt off their balance sheets (Brigham & Ehrhardt, 2015). These are usually established as a special purpose entity which allows a financial institution to have 97% of the debt and a 3% equity by a party other than the corporation (Brigham & Ehrhardt, 2015). One of the disadvantages would be that the corporation would have to decide what to do with the lease once it is expired and make a decision (Brigham & Ehrhardt, 2015). The corporation would have sell the asset and make up any shortfall between the sale price and the amount of the loan (Brigham & Ehrhardt, 2015).

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