ACCT 2520 Chapter Notes - Chapter 20: Executory Contract, Finance Lease, Operating Lease
9 Apr 2017
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Document Summary
Leasing is popular because it is a cost-effective way of financing property and equipment. From an accounting standpoint, leases have been controversial because many are off- balance sheet. Lease a contractual agreement between the lessor and lessee: gives the lessee the right to use specific property (owned by lessor, specifies the duration of the least, and rental payments. Obligations for taxes, insurance, and maintenance may be assumed by the lessor or the lessee or divided. Three main types of lessors: manufacturer finance companies. Main business is leasing: independent finance companies, traditional financial institutions. 100% financing at a fixed rate: no down payment required, rate charged is fixed for the term of the lease. Protection from obsolescence: properly can be upgraded. Flexibility: lease may be structured to meet different needs. Less costly financing (lessee) and tax incentives (lessor) Off-balance sheet financing: does not impact ratios.
