Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 19, Problem 2Q
Distinguish between operating leases and financial leases. Would you be more likely to find an operating lease employed for a fleet of trucks or for a manufacturing plant?
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Distinguish between operating leases and financial leases. Would you bemore likely to find an operating lease employed for a fleet of trucks or for amanufacturing plant?
Distinguish between operating leases and financial leases. Would a firm be more likely tofinance a fleet of trucks or a manufacturing plant with an operating lease? Explain.
What would be the advantages and disadvantages of leasing assets instead of owning them? How would the financial statements be different in a leasing situation (for both operating leases and finance leases) for the lessee? What about the lessor (including all of the types)? What disclosures should be made by lessees and lessors related to future lease payments?
Chapter 19 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 19 - Define each of the following terms: a. Lessee;...Ch. 19 - Distinguish between operating leases and financial...Ch. 19 - Prob. 3QCh. 19 - Prob. 4QCh. 19 - Prob. 5QCh. 19 - Prob. 6QCh. 19 - Prob. 7QCh. 19 - Prob. 8QCh. 19 - Reynolds Construction (RC) needs a piece of...Ch. 19 - Lease versus Buy Consider the data in Problem...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Three different lease transactions are presented below for Carla Vista Enterprises. Assume that all lease transactions start on January 1, 2021. Carla Vista does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid on January 1 starting on January 1, 2021. Carla Vista Enterprises prepares its financial statements using ASPE. Manufacturing Equipment Office Equipment Vehicles Lease term 5 years 6 years 3 years Estimated economic life 15 years 7 years 6 years Yearly rental payment $15,370 $15,348 $3,928 Fair market value of leased asset $99,050 $89,150 $16,910 Present value of lease rental payments $58,910 $69,023 $10,340arrow_forwardExplain the accounting for operating leases.arrow_forwardExplain the concept of accounting for leases and the criteria used to determine whether a lease should be classified as an operating lease or a finance lease. Discuss the implications of lease accounting on a company's financial position and performance.arrow_forward
- Which of the following statements is true about initial direct costs? A. Initial direct costs of a sales-type lease should be expensed at the commencement of the lease only if no selling profit or loss has been incurred. B. Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes. C. Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset. D. Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.arrow_forwardIdentify the CORRECT statement regarding the effect of lease on return on capital employed. Select one: O a. A company is able to improve its return on capital employed (ROCE) by entering into a finance lease for leasing non-current assets rather than borrowing to cover the purchase price of the assets. O b. A company is able to improve its return on capital employed (ROCE) by leasing non-current assets rather than borrowing to cover the purchase price of the assets. O c. A company is unable to improve its return on capital employed (ROCE) by leasing non-current assets rather than borrowing to cover the purchase price of the assets.arrow_forwardWhen are initial direct costs recognized in an operating lease? In a direct financing lease? In a sales-type lease? Why?arrow_forward
- help me to solve it pleasearrow_forwardWhat are some features found frequently in office leases?arrow_forwardThere are two parties in any lease contract—the lessee and the lessor. To a lessor, a lease analysis involves a capital budgeting analysis of the property or equipment to be leased. The lessor’s decision is either to purchase and lease-out the asset, or not make the investment at all. Like any capital budgeting decision, the lessor needs to evaluate the rate of return expected to be earned from making the lease. Further, since the cost and other terms of leases involving high-cost items are negotiated, this rate of return information is also important information for a prospective lessee. From the following statements, identify the steps involved in lease analysis from a lessor’s perspective. Check all that apply. Determine the lease payments minus income taxes and any maintenance expenses that the lessor must incur as per the lease agreement. Determine the invoice price of the leased equipment minus any lease payments made in advance. Determine the periodic…arrow_forward
- Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.arrow_forwardA lease is a financing instrument used by an entrepreneur to acquire assets for the business.describe and explain the two main types of leases, operating lease and finance lease, and include a discussion of the accounting treatment and tax impact of each. You may supplement your responses with research from outside sources.arrow_forwardHow can you apply the concepts of “Time Value of Money” in deciding for Rent-Buy-Lease of Equipment?arrow_forward
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