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Consultant Memo

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Accounting Consultant Company | To: | Supervisor | From: | Accountant | CC: | Regional Trucking Company | Date: | 12/18/2011 | Re: | Lease and Lease Structures |

According to the Financial Accounting Standards Board (FASB), “the Boards defined a lease as a contract in which the right to use a specified asset (the underlying asset) is conveyed, for a period of time, in exchange for consideration.” There are a few different types of leases to look at, sales-type, direct financing, and operating leases. After reviewing them, there will be a clear choice in the type of lease that the Regional Trucking Company should use. Operating leases are short-term leases, the lessor retains the ownership benefits, they are considered an operating expense on financial statements, and they do not show up as capital of the company. This would be beneficial to them because they are unsure of the length that the current opportunity will last. The Regional Trucking Company fits into this structure of a lease very well. An operating lease is a good choice in this company’s situation. FASB Statement Number 13 states, “Normally, sales-type leases will arise when manufacturers or dealers use leasing as a means of marketing their products.” The Regional Trucking Company that we are consulting for needs an additional twenty trailers; they will not be leasing their own equipment. Hence, a sales-type lease would not be the type of lease they should go with. It would not make any sense because they are not trying to compete in their own business; they are just trying to take advantage of an opportunity that has come along. This is used in capital leasing. The direct financing lease is accounted for the same way as a sales-type lease and it is also used in capital leasing. In a direct financing lease, the lessor is not a manufacturer or dealer in the item, they

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