Under U.S. GAAP, what incentives does a company's management have to structure its leases as...
Question:
Under U.S. GAAP, what incentives does a company's management have to structure its leases as operating leases?
Operating leases:
The type of lease that doesn't transfer the ownership of the assets to the lessee is referred to as an operating lease. GAAP prescribes some of the rules related to the operating leases. It doesn't include the assets and liabilities of the lease in the balance sheet of the lessee.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerThe lease incentive indicates payments paid to the lessee by the lessor either directly or indirectly. Examples of lease incentives are paying a lump...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Operating Lease in Accounting: Definition, Calculation & Example
from
Chapter 22 / Lesson 44
4.2K
Discover what an operating lease in accounting is and its importance. Learn the formula for making an operating lease and see it calculated in examples.
Related to this Question
- What are the advantages and disadvantages of leasing assets instead of owning them? How would the financial statements be different in a leasing situation (for both operating leases and capital leases) for the lessee? What about the lessor (including all
- What are the implications for analysis if a company has significant operating leases?
- Why do companies prefer to classify leases as operating leases rather than as capital leases?
- Discuss three advantages of structuring a leasing arrangement as an operating lease over a capital lease (use the perspective of the lessee).
- Discuss the similarities and differences between the indicators of finance leases under IFRS and the criteria for capitalizing leases under U.S. GAAP. Explain which approach you believe most accurately reflects the information on the financial statements
- Why is it important from an accounting perspective to classify a lease into operating or capital lease? What is the criteria to classify the lease into operating and capital lease ? Do you think the lessee tends to prefer an operating lease or a capital
- What are the steps to analyzing, interpreting, and capitalizing operating leases?
- Lenders to leveraged leases hold nonrecourse debt. What does nonrecourse mean? What are the benefits and costs of nonrecourse debt to the equity investors in the lease?
- Compare and contrast the way leases are classified between operating and capital leases under GAAP and IFRS.
- From an accounting standpoint, how does leasing differ from buying property? What factors affect the accounting of it? As a business owner, what elements would affect your decision?
- Provide examples of some lease agreements of a governmental/not-for-profit entity. How do these leases impact the financials of the organization?
- Assume that you are currently negotiating a lease transaction in the role of the lessee. Discuss whether you would rather structure the lease as an operating lease or a capital lease and why. In addition, provide the conditions that would require that the
- Discuss the similarities and differences between the indicators of finance leases under IFRS and the criteria for capitalizing leases under U.S. GAAP. Which approach does accurately reflect the information on the financial statements? Explain.
- Why would a lessee prefer an operating lease to a capital lease?
- Review the reasons why firms undertake leasing. Explain why some of these reasons are not beneficial for shareholders.
- Discuss the similarities and differences between the indicators of finance leases under IFRS and the criteria for capitalizing leases under U.S. GAAP and explain which approach you believe most accurately reflects the information on the financial statemen
- Briefly discuss the culvert state of accounting for leases, the strengths and weaknesses, and where improvement can be made. Be sure to discuss the off-balance-sheet financing nature of operating leases.
- Explain the difference between a finance lease and an operating lease as a means of financing the purchase of an asset.
- Describe several reasons why a firm's managers might choose to lease rather than purchase operating assets (such as buildings and equipment).
- What are the differences between the IFRS and US GAAP on the Treatment of Onerous Contracts? Explain.
- Describe the effect of a "bargain-purchase option" on accounting for a capital lease transaction by a lessee.
- What are the two most important factors against the implementation of IFRS for publicly traded companies in the United States?
- Explain the nature, economic substance, and advantages of lease transactions.
- What are the differences between the IFRS and US GAAP on the Treatment of Service Contracts? Explain.
- Is the executory nature of lease contracts important in assessing lease accounting? How have leases been interpreted? Why might non-cancellability override the executor nature?
- Describe the standard setting environment for the U.S. GAAP, i.e. who sets it and how. Also explain the organizational structure of FAF, FASB and GASB, and who else has influence on the standard setting process.
- Discuss the key role lease residual values play in determining the subsequent accounting for leases for both the lessee and the lessor.
- What are the benefits of the corporation with the partnership and proprietorship structures? How is equity treated and reported differenty in this structure?
- What criteria should be considered to determine whether to lease or buy a required fixed asset? Analyze and discuss the benefits and drawbacks of each option.
- What are the international benefits of harmonization of the International Financial Reporting Standards (IFRS) and the United States Generally Accepted Accounting Principles (GAAP)? Explain.
- Discuss the advantages and disadvantages of leasing a building versus purchasing one.
- What are the similarities and differences between leases and other means of property acquisition? How can these similarities and differences be reported in the financial statements?
- Discuss the key role lease residual values play in determining the economics of leasing.
- Is IFRS or U.S. GAAP more restrictive for determining when firms are allowed to elect the fair value option for financial assets and liabilities? Explain.
- How do the three key hypotheses of Positive Accounting Theory (PAT) explain managerial motivations for corporate earnings management?
- What are the potential benefits that a multinational corporation could derive from international convergence of accounting standards?
- What specific managerial accounting information might be used in determining the strategy for decision-making for interstate or global business growth?
- Describe how the following transaction affects the U.S. Balance of Payments: An American company sells a subsidiary in the United States, and with the proceeds, buys a French company.
- Which of the following statements best describes an advantage of the corporate form of doing business? a. Day-to-day management is strictly the responsibility of the directors. b. Ownership is contractually restricted and is not transferable. c. The op
- Discuss the key role lease residual values play in determining the initial accounting for leases for both the lessee and the lessor.
- What is the advantage of issuing bonds instead of obtaining financing from the company's owners?
- What are the two most important factors in support of implementing IFRS for publicly traded companies in the United State?
- Compare and contrast an operating lease with a capital lease.
- What incentive(s) does a company have to allocate more of a group purchase to Land than to Building, and why?
- What role does GAAP play in how firms determine transfer prices?
- How would the AICPA adoption of International Accounting Standards potentially affect how American companies value inventory? Explain.
- A rental agency collects rent in advance. Why is the rent collected treated as a liability?
- How does a leveraged lease differ from an ordinary, long-term financial lease? List the key differences.
- Discuss the pros and cons of leasing an asset vs. buying an asset.
- A. In terms of minimizing tax liability, how would estate planning differ from a partnership to a corporation? B. For estate planning purposes, what are the advantages of setting your business up as
- What are the benefits of converting from GAAP to IFRS from a company perspective and investor perspective?
- Which translation method does US GAAP require for operations in highly inflationary countries? What is the rationale for mandating use if this method?
- Why would a firm choose one depreciation method over another? What are the advantages of each method?
- (a) Describe the benefits that a company may derive from a formal budgeting process. (b) Why the determination of standard cost amounts should not be the sole responsibility of a company's cost accountant?
- Discuss how lease accounting is changing for the lessee with the introduction of AASB 16 Leases, which is replacing AASB 117 Lease from 1 January 2019.
- Which of the following business factors does not play a role in determining a company's credit rating? A. Industry Characteristics B. Capital Structure C. Management D. Profitability E. None of the above
- What do potential voting rights refer to, and how do they affect the application of the equity method for investments under IFRS? What about under U.S. GAAP?
- What is the basic differences between IFRS and GAAP, Have an opinion as to which one the US should be using and support that opinion, list a few specific examples of differences.
- What are the two most important arguments against allowing IFRS for public U.S. companies?
- How does purchasing a franchise differ from simply staffing up your own business? Include in your answer the possible advantages and disadvantages to the franchisee.
- The use of the capital lease method for a given lease will always result in a lower net income than the operating lease method. Do you agree? Explain fully.
- Which of the following corporate characteristics is an advantage of the corporate form of business? a. The potential to raise large amounts of capital b. Limited liability c. No mutual agency d. All of the above.
- Why might a company lease a long-term asset rather than buy it and issue long-term bonds?
- How can management accounting contribute to planning, decision making and control in e-business and e-commerce?
- Discuss the major similarities and differences between U.S. GAAP and IFRS. If there is a convergence between U.S. GAAP and IFRS, would you choose the U.S. GAAP or IFRS method? Why?
- How does the FASBs ASC system classify leases, in accounting records? Discuss alternatives, and identify which alternatives you would recommend.
- Describe the structure of GAAP prior to the codification, and after the codification. What are the pros and cons related to the change?
- Discuss the major similarities and differences between U.S. GAAP and IFRS. If there is a convergence between U.S. GAAP and IFRS, which method would you choose? Why?
- Contrast the operating and capitalization methods of recording leases.
- What does "Developing a little bit of credit history for the company would place an incentive on investors to allow company growth" mean?
- Discuss whether the old lease accounting standard (AASB 117) is to blame for, or has contributed to, some companies' failures during the financial crisis.
- Describe how the various levels of ownership impact how companies account for investments.
- Discuss the advantages of a convertible bond from the standpoint of 1) the bondholder and 2) the issuing corporation.
- Define the business entity concept and explain its implication in the preparation of financial statements.
- How does CVP analysis contribute to increasing the quality of decisions? What is your interpretation of operating leverage? Is it relevant? Can you estimate it from a traditional GAAP accounting inc
- Why is a hybrid entity a popular organizational form for a U.S. company expanding its international operations?
- What are some benefits and risks of various depreciation methods on a company's net income?
- How does managerial accounting benefit an organization's decision making?
- Explain the advantages for a corporation to obtain financing by issuing debt over equity.
- Given the performance measures in the remuneration contract, what accounting decisions could the CEO make in order to maximise their bonus?
- 1. What characteristics distinguish nonbusiness organizations from profit-oriented enterprises? 2. Define a fund as the term is applied in accounting for the activities of governmental units and othe
- Assuming the U.S. publically traded are required to move to IFRS, discuss how accounting systems will need to be changed, business processes, and the impact to the business operations.
- What are the implications of the nexus of contracts view of the firm for accounting policy choice?
- Discuss the advantages of understanding accounting. Consider careers in management, sales, business operations, finance, and business ownership.
- The advantages of financial leverage accrue primarily to: a) management b) stockholders c) lenders d) bondholders
- What is the significance to working capital management of matching sales and production?
- Why is the characterization of U.S. GAAP, based on historical cost, not valid? Give examples.
- Discuss the three major types of leases that may apply to the lessor. How do they differ?
- Suppose a company is implementing lean accounting throughout the organization. Why might standard costing not be beneficial for that company?
- 1) What are at least four depreciation methods that are available to a company? 2) What are their similarities and differences? 3) Why does a company select one method over another?
- Describe how accounting information is used in contracts between the shareholders and management. What are the implications of the nexus of contracts view of the firm for accounting policy choice?
- How might differences in the presentation of comparative data under GAAP and IFRS affect the adoption of IFRS by U.S. companies?
- Discuss pros and cons for the method of accounting under US GAAP and IFRS, respectively. Based on your discussion, under what circumstances (e.g., what types of firms, market conditions, etc) are the US GAAP standards better and under what circumstances
Explore our homework questions and answers library
Browse
by subject