Differences In The Treatment In The Financial Statements For Capital Essay

Differences In The Treatment In The Financial Statements For Capital And Operating Leases - Essay exemplificationA detonator charter is considered an acquisition of ownership once the lease is paid out. The lessee must evince the lease as an plus. The four criteria that must be considered by accountant to record a lease as a metropolis lease are The lease transfers ownership of the property to the lessee The lease contains a bargain purchase option The leas is equal to 75% or more of the economic life of the contract property The present value of the lease payments equals or exceeds 90% of the fair market value of the rent property (Weygand & Kieso & Kimmel, 2003, pg. 658). Weygandt, J., Kieso, D., Kimmel, P. (2002). Accounting Principles (6th ed.). New York John Wiley & Sons. 2. I think that capital leases are better investing options than operating leases. I compare the difference among an operating leases and a capital leases to the difference between been a renter and a homeowner. Companies that incur in operating leases contracts are throwing money away beca subprogram they testament pay thousands of dollars and bequeath never own the equipment. Sometimes due to the nature of the project it is better to use operating leases. For example if a project has a completion elapsed time of 6 months, it is cheaper to have equipment using short operating lease contracts. 3. When you think about the criteria of having a leases for the duration of at least(prenominal) 75% of the useful life of equipment it makes sense that capital lease transfer ownership. The person that pays the lease will pay the owner of the equipment the majority of the value of the asset. I think the use of capital leases is a skilful way to add value to the offset sheets of a phoner. The equipment will increase the total assets account of the company. Since the balance sheet is ground on the basic accounting equation it must balance itself out, thus on that point is need of a liability to be included in the balance sheet to offset the asset entry. 4. The four criteria you mentioned in your response are right on target. The first measuring rod of ownership establishes that a capital lease will lead to ownership of the equipment by the lessee once the contract is complete. A capital lease is similar to a contract to buy a home because the homeowner does not genuinely fully own the home until is completely paid. If the homeowner fails to pay his monthly payment for more than one-third consecutive months the bank could foreclose on the home and take back the house. The fair value criterion also completely justifies the ownership privileges in a capital lease. 5. Weekly Summary During week dickens of the course I learned a lot about accounting theory. The classroom discussion was precise informative. I now clearly understand the difference between an operating lease and a capital lease. The week two individual paper cover some very specific accounting t opics transaction with some unusual transactions. I use to believe that the farm animal reflected in the balance sheet was based on historical cost only. I learned this week that companies make adjustment to lower the farm animal when the current replacement cost is lower. Another interesting accounting topic I learned during my look into for the week two paper was that accountants can capitalize interest on construction projects. 6. The total inventory of the company at the end of 2009 was 282,000 units. Using LIFO the valuation of the inventory is illustrated below ten thousand 15 150000 22000 18 396000 250000 20 5000000 282000 19.67 5546000 The average cost per unit of the company at the end of the year was $19.67 per unit. If the company decides to purchase the 40,000 units at $17 before the end of the year the valuation of the inventory is illustrated below 10000 15 150000 22000 18 396000 250000 20 5000000 40000 17 680000 322000 19.34 6226000 The decision of