Accounting

Response to Client Request I

ACC/541

01/30/2011

Michael Meyer

CONSULTING FIRM

Memo

To: Team Supervisor

From: Team Consultant

Date: January 30, 2011

Re: Regional Trucking Company

The present memo intends to inform the client on leasing and leasing structure in accordance with the Financial Accounting Standards Boards (FASB). It also addresses some of the key issues related to direct financing, sales type, and operating leases. The consulting firm mentioned that purchasing assets by internal or external source of finance enables the trucking company to acquire property rights on the assets. In the event the company cannot purchase property, the other way of acquiring assets in the long-term comes through leasing.

Direct Financing Leases

Direct financing lease occurs when a lessor is not a dealer or a manufacturer. In order for a direct financing lease to occur, a lessor must state its intention to rent or lease the asset acquired to a third party. For instance, the lessor may purchase a property only for the purpose of leasing it. The objective is to acquire an asset that can be used to make as well s a profit and payments on the lease. Schroeder, Clark, and Cathey (2005, P.428), the FASB adopted the approach of requiring the recording of the total minimum lease payments as receivable on the date of the transaction and treating the difference between that amount and the asset cost as unearned income.

Sales Type

A Sales type lease is an agreement between a lessor and a lessee. The lessor agrees to leases its equipment or property to lessee. The lessor gives the right to use property for a specified period of time in return for periodic cash payments. For instance, the trucking company has new opportunity with potential growth. Therefore, it may offer on a monthly basis a lease on 20 more trailers which represent a total of 120 trailers. Sales type-lease is used by trucking company as a means to market its products. Therefore, a sales type...