Leases and Lease Structure Issues Essay examples

Words: 1134
Pages: 5


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 information must be disclosed in the lessee’s financial statements or in the accompanying footnotes:
1. The gross amount of assets recorded under capital leases as of the date of each balance sheet presented by major classes according to nature or
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Initial direct costs in financing leases are treated as an adjustment to the investment in the leased asset. In each accounting period over the life of the lease, the unearned interest income minus the indirect cost is amortized by the effective interest method. Because the net investment is increased by an amount equal to the initial direct costs, a new effective interest rate must be determined in order to apply the interest method to the declining net investment balance.

Lessees classify all leases that do not meet any of the four capital lease criteria as operating leases.
The following disclosures are required for operating leases by lessees:
1. For operating leases having initial or remaining noncancelable lease terms in excess of one year: a. Future minimum rental payments required as of the date of the latest balance sheet presented in the aggregate and for each of the five succeeding fiscal years b. The total of minimum rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented
2. For all operating leases, rental expense for each period for which an income statement is presented, with separate amounts for minimum rentals, contingent rentals, and sublease rentals
3. A general description of the lessee’s leasing arrangements including, but not limited to, the following: a. The basis on which