After studying this chapter, you should be able to:

  1. 1 Explain the nature, economic substance, and advantages of lease transactions.
  2. 2 Describe the accounting criteria and procedures for capitalizing leases by the lessee.
  3. 3 Contrast the operating and capitalization methods of recording leases.
  4. 4 Explain the advantages and economics of leasing to lessors and identify the classifications of leases for the lessor.
  5. 5 Describe the lessor's accounting for direct-financing leases.
  6. 6 Identify special features of lease arrangements that cause unique accounting problems.
  7. 7 Describe the effect of residual values, guaranteed and unguaranteed, on lease accounting.
  8. 8 Describe the lessor's accounting for sales-type leases.
  9. 9 List the disclosure requirements for leases.

More Companies Ask, “Why Buy?”

Leasing has grown tremendously in popularity. Today, it is the fastest growing form of capital investment. Instead of borrowing money to buy an airplane, computer, nuclear core, or satellite, a company makes periodic payments to lease these assets. Even gambling casinos lease their slot machines. Companies that lease tend to be smaller, high growth, and in technology-oriented industries (see

A classic example is the airline industry. Many travelers on British Airways (GBR), Cathay Pacific (CHN), and Japan Airlines (JPN) believe these airlines own the planes ...

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