Response to Client Request I: Direct financing, sales type, and operating leases

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Response to Client Request I: Direct financing, sales type, and operating leases

INSTRUCTIONS:

Write a 700- to 1,050-word memo addressed to your supervisor that summarizes your FASB research results. Keep the memo brief while exploring the issues. Remember that both the client and the supervisor have limited time, and you want to make a good impression. Recommend an approach that the client can use to evaluate and capitalize on this opportunity. While working on a consulting engagement, a supervisor in your team has given you an assignment. The client is a regional trucking company. A new customer has approached the client with an opportunity that would require 120 trailers—20 more than the trucking company currently owns. The client is uncertain how long the relationship with the customer may last, but the deal has the potential for significant growth. Your supervisor has asked you to research leases and lease structure issues on the Financial Accounting Standards Board (FASB) website, in particular the current practice and thought related to direct financing, sales type, and operating leases.

CONTENT:

Response to Client Request I: Direct financing, sales type, and operating leasesNameCourseInstructorDate MEMODate:To:From:RE: Trailer leasing options The main aim of this memo is to clarify information about leasing options under the Financial Accounting Standards Board (FASB). It will also give recommendation on the leasing options pertaining to the new client. In essence, the memo will delve into sales type, direct financing and operating leases.I appreciate you giving me this assignment, and the opportunity that has arisen with the new client has potential to improve growth for the company. Nonetheless, there is uncertainty on business relations, as there is little information on whether the client will be a regular customer. As you are aware there are already 100 trailers available, but an additional 20 trailers would improve the company’s prospects. Hence, the need for leasing options necessitated me to look into the accounting treatment of leases in the FASB website and note down relevant details for this deal.While accounting for leases, inception of the lease means the date there is determination of lease classification. Essentially, classification enables recording of beginning of lease term, which needs to already have been determined as per the date of inception. The inception of the lease now captures the need to take into account the date when property is acquired, date of lease agreement or any prior commitment (FASB, 2014).A capital lease also referred to as a financial lease relates to a situation where there is transfer of liabilities from the lessor to the lessee, and the lease can either be considered a sales type lease or direct financing lease. The sales type lease applies when a manufactu...

Response to Client Request I: Direct financing, sa