Client Request

I have included my research of the different lease types for Client 1, also included at the end of the guidelines is my recommendation as what I believe would be in the best interest for the client. The guidelines are as follows. If the lease at inception meets any of the four lease classification criteria which are the transfer of ownership, bargain purchase option, the lease term, or the minimum lease payments and both of the criteria of collectability of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease. According to the FASB research, the following is the criteria for establishing one of the four types of leases which are a sales-type lease, a direct financing lease, a leveraged lease, or an operating lease as follows:

• a. Sales-type lease. A lease is a sales-type lease if it gives rise to manufacturer’s or dealer’s profit (or loss) to the lessor and meets either of the following conditions:

It does not involve real estate and meets any of the criteria in paragraph 840-10-25-1 and both of the criteria in paragraph 840-10-25-42. Section 840-10-25-42 states that a lessor shall consider all four lease classification criteria in paragraph 840-10-25-1 and both of the following incremental criteria: For implementation guidance on the interaction of lease classification and lessor activities, see paragraph 840-10-55-41.

• b. Direct financing lease. A lease is a direct financing lease if it meets all of the following conditions:

o 1.  It meets any of the criteria in paragraph 840-10-25-1 and both of the criteria in the preceding paragraph.

o 2.  It does not give rise to manufacturers or dealer's profit (or loss) to the lessor.

o 3.  It does not meet the criteria for a leveraged lease in (c).

• c. Leveraged lease. Leases that meet the criteria of sales-type leases set forth...