Financial Accounting

|                                                                           |Client Request I                                         |


      To: Client Request I “Regional Trucking Company”

      From: Accounting Firm

      Date: 10/24/2010

      Re: Trailer Leasing Options

      The purpose of this memo is to identify information on leasing in the Financial Accounting Research System (FARS) and recommend an approach to dealing with the situation with new cliental. Outlining the current practices related to direct financing, sales-type, and operating leases will be discussed.

      If a lease is defined as a captial lease which is where the lesser transfers much of the liabilities to the lessee, it will be considered a direct financing or sales-type lease. Direct fianancing lease is used when manufacturer or dealer decreases the record keeping of profit or loss on inventory, where they do with sales-type lease. A sales-type lease indicats earnings on gross profit. An operating lease is defined as a rental agreement.

      Capital lease are long term leases of items that are not technologically based, an example of this would be machinerys. Capital leases are known to benefit and drawback of ownership, so with this they are considered depreciated as assets. The Financial Accounting Standards Board (FASB) requires the following (one) to be met

          1. Title to equipment passes automatically to the lessee by the decreasing time of the lease term.

          2. An option to purchase the equipment at the end of the lease for substanitally less than fair market value.

          3. Lease terms are greater then 75 percent of the equipments useful life.

          4. Present value of the lease payment is greater than 90% of fair market value of the equipment at hand.

      Direct financing leases are a record of total minimum lease payments that are received within a dated transaction. Unearned income is then stated...