Finance Assignment Help With Accounting For Lessors

Example (Accounting for lessors)

A firm manufactures and then leases a photocopier; the annual minimum lease payments (MLPs) are $20,000 at the end of each year for three years. The cost of manufacture is $40,000. At the end of the lease the unguaranteed residual value is $10,000. The discount rate used is 8%.

Finance Assignment Help Order Now

If the lease is treated as a sales-type capital lease the lessor'sfinancial reporting at the beginning of the lease agreement will be as follows.

Gross investment in leaseAmount
MLPs of $20,000 x 3$60,000
Residual value$10,000
Net investment in lease
Present value of MLPs$51,542
Present value of residual value$7,938
Unearned income$10,520
At inception, in financial statements
Sales revenue$51,542
Gross profit on sale$19,480
Gross investment in lease$70,000
less unearned income$10,520
Net investment in lease$59,480

Thereafter the lease payments received of $20,000 a year are divided between interest income (8% of the net investment) and a reduction in investment.

The interest payment is cash flow from operations and the reduction in investment is an investing cash flow.

If a lease is accounted for as an operating lease then:

The assets will continue to be reported on the lessor's balance sheet, they will be depreciated as usual (with a cost of $40,000, salvage value of $10,000).

The lease payments will be rental income and be allocated to operating cash flow.

Email Based Assignment Help in Accounting For Lessors

Following are some of the topics in Leasing and Off-Balance-Sheet Financing in which we provide help:

Accounting For Lessors Assignment Help | Corporate Finance Homework Help | Finance Assignment Help | Finance Assignment Help | Finance Homework Help | Finance Online Help | Finance Problems Help | Finance Tutor | Help With Finance Homework | Online Tutoring