| |Client Request I |
To: Regional Trucking Company
From: Accounting Firm
Re: Trailer Leasing Options
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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.
The current practice involving direct financing leases requires the recording of the total minimum lease payments as a receivable on the date of the transaction and treating the difference between that amount and.