Response to Client

Response to Client Request

Jamillia Harris

ACC/541

December 10, 2012

Rebecca Kime

To: Supervisor

From: Jamillia Harris

Date: December 10, 2012

Subject: FASB Research Results and Recommendations

Any accounting information that any company needs to know is found on the Financial Accounting Standards Board website. The information that you are questioning about was found on the FASB website. Completing the research on leases and lease structure issues, and was focusing on the practices of direct financing, sales type, and operating leases. The client can use the information that was found to evaluate and capitalize on the opportunity of adding the new customer.

Discussing the criteria that is necessary to meet before classifying a lease as a capital lease or an operating lease is located on the FASB website. The lease has to meet one of the criteria before classifying as a capital lease. In SFAS No. 13, the criteria for classifying a lease as a capital lease are: the lease transfers ownership, the lease contains a bargain purchase option, the lease term is equal or exceeds 75 percent or more of the estimated remaining economic life, and at the beginning of the lease term the present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any related investment tax credit retained by the lessor (Schroeder, Clark, & Cathey, 2011).

As mentioned previously, a lease has to meet one of the criteria to be a capital lease if none of the criteria is met than the lease will be an operating lease. There are two other types of leases such as sales type lease and direct financing lease. To classify a lease as a sales type or direct financing lease, the lease has to meet one of the four criteria of a capital lease as well as two additional criteria. The two additional criteria is collectability of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of...