Lease Vs Operating Lease

Improved Essays
This case study provides an overview of accounting for leases, specifically capital and operating leases. Some researchers have found that managers manipulate leasing data in order to report a large amount of debt on the off balance sheet, rather than on the financial statement (Biondi et al, 2011). When an entity leases property, they must pay installments on the property for the terms of the lease contract (Schroeder et al, 2011). While there are some benefits in leasing property, there are also some complications that may occur. This paper will explore the accounting for leases and identify differences between the types of leases a firm may pursue.

Leasing: Capital or Operational Several studies have been conducted
…show more content…
• Payment of a bargain purchase option.
• Any guarantee by the leaseholder of residual value at the end of the lease.
• Any penalties that the leaseholder is liable to pay for not renewing the contract.
Operating Lease Operating leases on the other hand, are simpler than capital leases, because the rentals are considered revenue to for the landlord and expenses for the tenants. All rental advance payments will be recorded as a liability to the lessor and prepaid rent for the lessee (Schroder et al, 2011). For operating leases, APB Opinion No. 13 focus on noncapital leases which must reported by the leaseholder in a disclosure on the financial statement with the following requirements (Schroeder et al, 2011):
• Three conditions required to be reported on operating leases by the leaseholder:
a. Minimum rental payments required at the date of the latest balance sheet up to five years in the future.
b. The total minimum rental to be received in the future under subleases as of the date of the latest balance sheet.
• Rental expenses for each period, which an income statement is presented, with separate amounts for minimum rentals, contingent rentals and sublease

Related Documents

  • Great Essays

    Sales Tax Case Study

    • 1370 Words
    • 6 Pages

    As of December 31, 2011, what amount, if any, of sales taxes due should be recognized in eVade’s financial statements? 2. What effect, if any, does eVade’s decision to participate in the tax amnesty program have on the amount recognized as of March 31, 2012? 3. What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012?…

    • 1370 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    Respondent Bret Derrickson asserts that neither he nor Respondent Hu denied Complainant’s rental application based on her source of income. Derrickson asserts that Respondent Hu approved Complainant’s rental application but Complainant was unable to meet the lease terms agreed upon July 1, 2016. Derrickson states that he met Complainant on June 18, 2016, and showed her the available properties at 800 S. Wells. Derrickson acknowledges that Complainant disclosed that she had a “Housing Choice Voucher”. Derrickson explains that Complainant asked, “If the owners accept Section 8 applicants?”…

    • 827 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Frosty Company Case Study

    • 1045 Words
    • 5 Pages

    Simon was correct to question whether or not Frosty Co. could capitalize some of the interest on the new loan. After checking with GAAP, it was determined that Frosty Co. cannot capitalize the interest on the new loan as part of the construction project on the new factory. According to GAAP, three conditions must be met in order for the interest to be capitalized: expenditures for the asset must have been made, activities that are needed to get the asset ready for its use are already in progress, and interest costs are being incurred. Unfortunately, Frosty Co. does not meet the second requirement.…

    • 1045 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Tenant's Case Summary

    • 478 Words
    • 2 Pages

    On 9/26/17 Joseph Gomez, Wellness Coach (WC) made a visit to Nancy Roman (Tenant) at her apartment for the purpose of following up on her mental health, medical wellness and to address any issues she may be experiencing. When WC arrived Tenant was quite cordial. Tenant dressed appropriate and was groomed. She had recently undergone right foot surgery on her three middle toes and had a medical boot. Tenant appeared to be physically and mentally stable.…

    • 478 Words
    • 2 Pages
    Improved Essays
  • Superior Essays

    I. Warranty of Habitability " In a rental of any premises for dwelling purposes . . . there is an implied warranty that the premises are fit for human occupation." Bos. Hous.…

    • 1126 Words
    • 5 Pages
    Superior Essays
  • Improved Essays

    Quarters Housing To gain perspective of the student life at The Quarters, we interviewed four current tenants, with two attending Kirkwood, and two attending the University of Iowa. The ten questions asked ranged from accessibility to campus, transportation, amenities, cost balancing, and knowledge over the controversy. In their answers, there are some notable commonalities as well as a few differences. When asked how important housing was in regards to the closeness of campus, three students answered with a 4 on a five point scale and one gave a 3 on a five point scale. All stated that they had multiple forms of transportation, such as cars, the busing system, or friends which made living further away from campus easier.…

    • 677 Words
    • 3 Pages
    Improved Essays
  • Decent Essays

    New Jersey Rental Application Form New Jersey Rental Application Form helps a landlord to access the worthiness of a proposed tenant by acquiring personal and financial information. As a landlord, you are entitled to collect the application processing fee. Please process the application in an expedited manner and convey the outcomes to the applicant. Ensure that the applicant and co-applicant if any date and sign the form.…

    • 414 Words
    • 2 Pages
    Decent Essays
  • Improved Essays

    Reading and understanding them prior to signing and entering into an agreement is very necessary. The lease agreement is a legal document and binding on both sighing parties although the notarization of the document from the Notary…

    • 529 Words
    • 3 Pages
    Improved Essays
  • Great Essays

    Rent 322-A Case Summary

    • 660 Words
    • 3 Pages

    Ms. Steward-Wetterauer first came to tour Forest Lake at Oyster Point Apartments on April 7, 2016. On her initial visit it was noted that she was looking to move in around May 10, 2015 but needed to talk with her husband before making a final decision because he was oversees. Ms. Steward-Wetterauer did not submit her application for rental until April 11, 2016. Within those four days, apartments were leased to other prospects submitting applications and availability and rates had changed.…

    • 660 Words
    • 3 Pages
    Great Essays
  • Improved Essays

    This statutory violation was committed without dire consideration of the interests of the tenants and the possible impacts on their safety. One of the notable cases that has fundamentally pronounced itself on statutory violations by landlords and their liability is the Savannah Brock v. Watts Reality Company, Inc. and James C. Levie, 582 So.2d 438. In this case, the judges acknowledged the authority of Paterson v. Deeb, 472 So.2d 1210 (Fla.Dist. Ct.1985) as one of the legal tenets that hold landlords responsible for the provision of protection against “criminal acts of third parties” within the jurisdiction of Florida. As such, regardless of whether the requirements were contained in the lease agreement between the landlord and tenant, the state of Florida is governed by this precedent.…

    • 1167 Words
    • 5 Pages
    Improved Essays
  • Decent Essays

    The must enter date, print name, and sign to execute the lease agreement. The tenant must enter date, print name, and sign to execute Alaska Residential Lease Agreement. However, it is necessary that all tenants must sign this form in the case of co-tenants applying for the residential…

    • 467 Words
    • 2 Pages
    Decent Essays
  • Decent Essays

    Non Passive Activities

    • 248 Words
    • 1 Pages

    Differentiate between trade or business income and non-trade/business income, since the ordinary course of a trade or business exception can be used to reduce NII. 4. Understand the short-term rental exception to the general classification of rental activities being classifies as passive activities. 5. Examine the potential and the implications of the grouping election, since this may allow for activities to be fully classified as a non-passive activity, effectively reducing NII.…

    • 248 Words
    • 1 Pages
    Decent Essays
  • Improved Essays

    Debora Case Summary

    • 241 Words
    • 1 Pages

    Debora, We were hoping to add any sort of income control that mirrors what we already do for expenses. With our expenses, if a Property Manager were to enter in a PO that is 5% above its budgeted amount, that PO would be flagged and not process in the system until our Regional Property Manager either approves or denies it. For income then, we were looking to create a similar system such that a Property Manager is limited in the amount of rent they can enter during the leasing procedure without approval. The hope was to make the trigger threshold for income tied to some yet to be defined target (e.g if the PM were to enter a rent that is 10% less than market rent, they would need to get it approved before they can continue with the lease application).…

    • 241 Words
    • 1 Pages
    Improved Essays
  • Improved Essays

    The American Dream of home ownership was no doubt sucker punched during the Great Recession and became what many wished was a nightmare they could wake from. Deep emotional scars pierced many of all ages who had lost their homes during the housing crisis. As a result, visions were blurred as they wondered whether they would ever be able to own their own home again. People who were fortunate enough to maintain their mortgages saw their home values decline. Trust in our economy was compromised in the process.…

    • 828 Words
    • 4 Pages
    Improved Essays
  • Superior Essays

    a. By the “filter” tool, I learned that AT&T (ticker symbol “T”) had the largest capitalized value of operating leases, and the dollar…

    • 1324 Words
    • 5 Pages
    Superior Essays