Aacc 280 Week 1 Assignment

Another way to treat this provision would be not to recognize at the inception of the lease but directly expense the costs when the required maintenance is performed. Regarding the accrual method in Alternative 1, ASC 360-15-25-5 prescribes “the use of accrue-in-advance (accrual) method of accounting for planned maintenance activities is prohibited in annual and interim financial reporting periods.” This is consistent to FASB’s opinion

Before diving directly into the article from the Governmental Accounting Standards Board (GASB) titled Governments to Report Liabilities Connected with Their Obligations to Clean Up Pollution (2006), one must first take a step back and take time to read, comprehend, and take to heart exactly what this organization stands for. Taken directly from their main web page under the tab labeled Education, the first thing seen in big, bold, blue letters is, “Due Process: The GASB Is Listening” followed by a definition of what listening means, “to hear with thoughtful attention”. When researching a little more into the GASB, it is easy to see how crucial listening truly is for them in order to fully accomplish their

I had an intuition that the managers and leaders would score higher than other employees. Three leaders were assessed within our department and their scoring ranged from 99-112. There was an outlier score of 115 from an executive assistant and wondered if they really felt the way they answered or wanted to score better? However, after I thought about it, she is an executive assistant to the Chief Medical Officer who is now an Executive Vice President so she may have a very knowledgeable understanding of our strategic mission. Four employees scored 67-91, who are lower level status employees. According to ISO (n.d.) organizations need to encourage and involve employees because they are a critical to producing and providing value. I believe

The third and final question from the case is how would the lease classification change under U.S. GAAP. The FASB codification that deals with leases is ASC 840. U.S. GAAP classifies leases as operating leases or capital leases and it has a section for sale-leaseback transactions as well. Under U.S. GAAP, the lease in this case would be classified as a capital lease. This is because ASC 840-10-25-29 says, “If at its inception a lease meets any of the four lease classification criteria in paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease.” This lease meets two of those criterions. The lease term is equal to 75% of the economic life of the equipment (3 year lease term / 4 year economic life of equipment = .75 or 75%) and the present value of the minimum lease payments “equals or exceeds 90 percent of the excess of the fair value of the lease property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor” (ASC 840-10-25-1d). The present value of the minimum lease payments does in fact equal or exceed 90 percent of the fair value of the equipment ($248,690 / $265,000 = .94 or 94%). Under ASC 840-10-25-31, the lessee should use the implicit rate to calculate the present value of the lease payments because the lessee already

The first would be that instead of capitalizing the $210,000 to set up displays to promote the line, these displays could have been recorded as an Advertising Expense. One of the IFRS criteria for something to be considered an asset is that the benefit must be reasonably measurable. When it comes to anything done for the purpose of advertisement or promotion, it is hard to measure the benefit and that is why this cost could have been expensed rather than capitalized. However, by recording this event as an expense this would mean that Athina’s net income would have been overstated by $210,000 and that is an undesirable outcome for the national chain.

However, the article by Milano (2012) also describes how operating leases can be an efficient and flexible way of leasing to many businesses. Leasing can be an advantage to a lot of successful companies if managed accurately. The lessee has a choice in the portion of the life of the asset they lease, meaning when that contract is up they can refresh the asset with a newer version which can lead to improved performance and reliability (Milano, 2012). These advantages can be received by both financing and operating leases, although the downfall of the operating lease is that the liability of the full cost of the asset is not recorded in their balance sheet, instead only the smaller cost of the annual expense is included. This could mean that an investor or owner taking on a company may not realise the large amount of expense that occurs from leasing an asset as the total liability cannot be seen.

While working on a consulting engagement, a supervisor in the team has given an assignment. The client is a regional trucking company. A new customer has approached the client with an opportunity that would require 120 trailers—20 more than the trucking company currently owns. The client is uncertain how long the relationship with the customer may last, but the deal has the potential for significant growth. The supervisor has asked a research to be conducted on leases and lease structure issues on the Financial Accounting Standards Board (FASB) website, in particular the current practice and thought related to direct financing, sales type, and operating leases. This paper is a memo addressed to the supervisor that summarizes

The investing activities showed a reduction in the cost of acquisition of equipment and favorable lease rights, but an increase in short-term investments. This reduction is the result of the leases providing a minimum annual rent that adjusts to set levels during the lease term. Approximately 52% of the leases provide additional rent based on percentage of sales to be paid when designated levels are achieved. The increase in short-term investments center around expansion and remodeling costs.

Why did the FASB embark on a project to change the reporting standard for leases? Under the current financial reporting standards for leases, an entity has to determine the classification of leases to account for by applying bright-line rules. This creates a potential opportunity for management to structure leases in order to achieve a specific desired accounting results (FASB). In addition, the current accounting model does not require operating leases to be recognized on the balance sheet. As a result, investors may underestimate the assets and liabilities that arise from leases and, thus, cause an uninformed decision of investment. According to a 2014 study on public company filings, nearly a trillion U.S. dollars were reported in

There are three categories of leases, Capital, Operating, and Sale-Leaseback which are distinguished by their purpose influencing the process by which they are accounted for on the financials.

The difference between operating lease and sales-type lease is that in sales type lease the lessor sets a selling price above the asset cost, thus recognizing an immediate profit at the inception of the lease. Whereas, in operating lease income recognized using a straight-line basis over the life of the lease. Income would be spread out further on a sale-type lease thus spreading out the tax liability over the period of time. Therefore it would be beneficial for Sable Inc. to record the lease of bulldozer as sales type

Topic 842 will require the estimation of lease terms and subsequent lease payments by companies under a criteria that cautiously take into consideration, in addition to written lease arrangements, the “economic incentives for a company to exercise an option to extend a lease term or for an entity not to exercise an option to terminate a lease”. With respect to finance leases only, the lease payments will subsequently be discounted using the company’s incremental borrowing rate to reach the lease obligation. This lease obligation will then be disclosed as a liability with an offsetting disclosure of the right to use asset as an intangible asset on the balance sheet. The amount of the right-to-use asset will also include any direct cost related to the negotiation of the lease and payment by the company. With respect to capital leases, the lessee is required to separate the interest on the lease liability and the amortized right-to-use assets on the statement of comprehensive income. The payment of interest on the lease liability and lease payments are recorded in the operating activities of the statement of cash flows. The principal portion of the lease payment will be recorded within the financing activities section of the statement of cash flows.

This accounting policy will improve the preliminary financial statements drastically. Net income will be substantially higher; rather than expensing everything right away, we are matching the expenses with revenues. This better represents the earnings of the company. Additionally, the balance sheet will be show a higher amount of assets due to the capitalization of expenses. This will increase asset-to-debt ratios and improve the attractiveness of the company to investors.

While there are more incentives to classifying a lease as operating such as tax incentives, higher return on asset, and better solvency ratios, the lease must be classified as a Capital Lease so as to stay in accordance with IFRS. However, a Capital Lease does provide a company with a higher operating cash flow, and reduces Net Income,

Both the companies have used the lease term to calculate the depreciation on the operating leased assets. Both the companies have not subjected land to any depreciation.