Response_to_Client_Paper

I would like to thank you for the opportunity to discuss with you lease options for your company. There are three options we would like to introduce and will, based on the information given and researched, make a recommendation for your company. There are three lease types we wish to present to you: Direct Financing, Sales-type lease, and operating lease. The Financial Accounting Standards Board has set rules, regulations and criteria that directs what these leases are, and what they shall and shall not include. Direct Financing Lease: Direct financing lease: If a lessee transfers ownership of the lease to the lessor by the end of the lease term(Financial Accounting Standards board, 2011); If the lease contains a bargain purchase option(Financial Accounting Standards board, 2011); If the lease term is 75 percent or more of the estimated economic life of the leased property; or if the present value of the lease term of the minimum lease payments, excluding that portion of the payments representing executor costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor(Financial Accounting Standards board, 2011). It must not give rise to manufacturers or dealer’s profit (or loss) to the lessor, and it does not meet the criteria for a leveraged lease (Financial Accounting Standards board, 2011). With this type of transaction the company would rent the trucks from the financial institution without directly borrowing the money. A Sales-type lease is a lease in which the fair value of the leased property, at lease inception, is greater or less than its cost or carrying amount (Financial Accounting Standards board, 2011); it involves real estate and the property transfers ownership by the end of the lease term, and collectability of the minimum lease payments is not reasonably predictable, and there are no uncertainties surrounding the amount of reimbursable costs (Financial Accounting Standards board, 2011). The lease does not involve real estate and Collectability of the minimum lease payments is reasonably predictable (Financial Accounting Standards board, 2011); and No important uncertainties surround the amount of un-reimbursable costs yet to be incurred by the lessor under the lease (Financial Accounting Standards board, 2011). Operating Lease: is one that does not transfer ownership, does not have a bargain purchase option, and does not have a lease term or minimum lease payments (Financial Accounting Standards board, 2011). An operating lease constitutes an agreement of rental, where the lessee pays fees for renting equipment or building to the lessor for a specified amount of time and an agreed upon amount of money (Financial Accounting Standards board, 2011). The use of any one of these types of leases depends on the financial circumstances of the company. While all are good options for our new client, after much research and discussion the one we believe is best for our client is the operating lease. While the potential for growth is here, the fact remains that the time frame we have with this client is still uncertain. The operating lease can be on a month to month basis, year to year, or any amount of time agreed upon between the entities involved. If, in the future, it is decided that a long term contract can be forged, then we can look at other financing options that would be more beneficial to all parties involved. Thank you for the opportunity to research this project and share my opinion, and thank you for taking my suggestions into consideration.