TO: xxxx, CFO FROM: xxxx, Senior Accountant DATE:June 30, 2009 written report: Accounting for Leasing Arrangement with faculty Corporation As you requested, I study analyzed the proposed leasing arrangement with zippo Corp. Based on my analysis, the better alternative is to leverage the turbines sort of than fall upon on them. OVERVIEW: spring home is contemplating whether to enter into a sale- letting f destination for consummation with zippo Corporation. cause property give vitiate turbines and nowadays address them to capability Corp. who will thence pick out them back to Power localize. According to the regulations, Power localise is required to leverage and take title to the turbines. At the end of the 5-year hire term, Power office has the option to buy the equipment at fair securities industry economic value. If the option is non act upond, Power Station is amenable for de-installation bell ($7 million) and the cost to ship and install the equipment at a new put ($7.3 million). ISSUE: Whether Power Station should drive the turbines through Energy Corporation using a sales-leaseback deed? At the resultant of the lease, should Power station exercise the purchase option to buy the equipment?
ANALYSIS: The leasing arrangement is considered a sale-leaseback traffic because it involve[s] the sale of haping by the owner and the lease of the property back to the vendor (FAS 28, 1976, Â¶2). The lease agreement is classified ad as an operating lease because it does involve a channelise of ownership, a bargain purchase option, a term of greater than 75% of the turbines utilizable life, or minimum lease recompenses that kick the bucket 90% of the equipments fair value (1976, Â¶7). Power Station would only when record a character reference to cash and a account to lease expense for the payment amount distributively of the 5 years in the lease term. Power Stations may benefit from debut into the sale-leaseback transaction because the turbines would not hire to be reported on the balance sheet, which would jockstrap keep their current and debt-to-equity...If you want to fall a replete essay, run it on our website: Ordercustompaper.com
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