The terms lessee and lessor.

Question

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

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Students have asked these similar questions

Under a capital lease: Select one: a. The lessee report assets on balance sheet O b. None of the options c. The lessee report rent expenses on income statement d. The lessor report rent expense on income statement

A lease agreement whereby the lessor shall recognized gross profit at inception of the lease? a. Multi-agreement lease b. Direct finance lease c. Operating lease d. Dealers lease

The difference of gross investment in the lease and net investment in the lease of the lessor is? A. Total amount of interest that the lessee shall recognized as interest expense over the lease term. B. Interest income at inception of the lease. C. Total amount of interest that the lessor shall recognized as interest income over the lease term. D. Initial direct cost.

Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

Answer 6

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

Answer 7

Chapter 19, Problem 1Q

a.

Summary Introduction

To explain: The terms lessee and lessor.

Answer 8

a.

Expert Solution

Explanation of Solution

Lessee is usually the person who makes the payment in order to use the asset taken on lease. Lesser can be explained as the title-holder of an asset given on lease to the lessee.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

Answer 13

b.

Summary Introduction

To explain: The terms operating lease, financial lease, sale-and-leaseback and combination lease, synthetic lease and SPE

Answer 14

b.

Expert Solution

Explanation of Solution

Operating lease is defined as a lease that allows a lessee to use the asset acquired on lease but this does not expresses about the rights of possession of an asset. It is also known as service lease.

Financial lease is defined as a lease in which the lessee is typically a legal owner of an asset during the tenure of lease. It is also known as capital lease or sales lease.

Sale and leaseback can be referred to as leaseback. In this type of lease, a company sells the asset to another company during liquidity crisis and then acquires the same asset on lease to use it. It can be considered as a type of financial lease.

Combination lease is defined as a mixture of both operating and financial lease.

A synthetic lease is an arrangement among a company and a special purpose entity.

It produces to borrow money and purchase equipment. It doesn’t seem to be on the books of the company as an obligation though the amounts of “lease” to really borrowing money guaranteed by the lessee.

A special purpose entity (SPE) is a company set up to simplify the creation of a synthetic lease. It borrows money which is guaranteed by the lessee, purchases equipment, and leases it to the lessee. Its determination is to keep the lessee from having to capitalize the lease and to carry the payments on the books as a liability.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

Answer 19

c.

Summary Introduction

To explain: The terms off-balance sheet financing and capitalizing.

Answer 20

c.

Expert Solution

Explanation of Solution

Off-balance sheet financing is defined as a situation in which operating lease for the lessee and lesser never appeared on the balance sheets of both the parties to a lease agreement. To tackle this problem Accounting Standards Board (ASB) issued a statement named as FASB (Financial Accounting Standards Board) statement 13.

Capitalizing can be defined as incorporation of amounts of leased assets and leased liabilities in balance sheets to report as true and fair picture of balance sheet. It further included reporting of operating lease according to ASB update 2016-02.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

Summary Introduction

To explain: The terms FASB Statement 13.

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

Answer 25

d.

Summary Introduction

To explain: The terms FASB Statement 13.

Answer 26

d.

Expert Solution

Explanation of Solution

FASB Statement 13 is a statement issued by ASB that provides information regarding lease provisions and about the procedures to be followed while reporting the leased amounts in balance sheet.

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

e.

Summary Introduction

To explain: The term guideline lease.

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

Answer 31

e.

Summary Introduction

To explain: The term guideline lease.

Answer 32

e.

Expert Solution

Explanation of Solution

Guideline lease can be defined as a lease that fulfills all the conditions stated in Internal Revenue Service (IRS) required for a valid lease. It also recognized as tax-oriented lease. Fulfillment of IRS conditions can provide lesser with the benefits of ownership.

Answer 33

e.

Expert Solution

Answer 34

e.

Expert Solution

Answer 35

Expert Solution

Answer 36

f.

Summary Introduction

To explain: The term residual value.

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

Answer 37

f.

Summary Introduction

To explain: The term residual value.

Answer 38

f.

Expert Solution

Explanation of Solution

Residual value can be defined as the market value of a lease asset at the end of its useful life.

Answer 39

f.

Expert Solution

Answer 40

f.

Expert Solution

Answer 41

Expert Solution

Answer 42

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

Answer 43

g.

Summary Introduction

To explain: The terms lessee’s analysis and lessor’s analysis.

Answer 44

g.

Expert Solution

Explanation of Solution

Lessee’s analysis is explained as analysis done by a lessee before acquiring an asset on lease. Lessee determines whether buying an asset or leasing an asset which among the two options would be more cost effective.

Lessor’s analysis explained as analysis done by a lessor’s which involves determining rate of return on the proposed agreement by the lessee. If the cash inflows are much more than the opportunity cost than it is a cost effective investment.

Answer 45

g.

Expert Solution

Answer 46

g.

Expert Solution

Answer 47

Expert Solution

Answer 48

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

Answer 49

h.

Summary Introduction

To explain: The term net advantage to leasing (NAL).

Answer 50

h.

Expert Solution

Explanation of Solution

Net advantage to leasing (NAL) can be defined as the difference between present value of after tax leasing cash flows and present value of after tax owning cash flows. It can also be stated as cost of leasing versus cost of owning.

Answer 51

h.

Expert Solution

Answer 52

h.

Expert Solution

Answer 53

Expert Solution

Answer 54

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.

Answer 55

i.

Summary Introduction

To explain: The Alternative minimum tax (AMT)

Answer 56

i.

Expert Solution

Explanation of Solution

AMT is figured at 20% of the profits which are reported to the stock holders. It is the provision of tax code which needs the profitable firms to pay at least some taxes when such taxes are more than the amount due under the standard tax accounting.

It provides a stimulus to leasing for firms which pays AMT as leasing lowers the profits which are reported to the stock holders.