Please help. Write a five- to seven-page paper, formatted according to APA style
ID: 2601020 • Letter: P
Question
Please help.
Write a five- to seven-page paper, formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.) Links to an external site. . Your paper should also cite five of the research links below and include an in text citation, a quote from the article. Section heading titles should be centered and in bold.
Address the following questions:
Introduction
Explain the present rules for evaluating a lease and whether it is capitalized or not.
Explain the new lease accounting rules.
What affect will these new rules have on the balance sheet, the income statement and the cash flow statement?
What industries would be affected more than others?
Explain the proposed new Type A and B lease and the differences.
Explain the effects of the proposed lease standards would have on the following: Presentation on the financial statements. How assets and liabilities would be computed. The effect to lease expense due to “Front Loading.” Interest charges. Year-end reporting. Financial disclosure notes. Income taxes.
Conclusion
The following links can be used for your research:
FASB Issues Lease Rules; Will Have Big Balance Sheet Impacts: http://www.bna.com/fasb-issues-lease-n57982067931/ (Links to an external site.) Links to an external site.
FASB, IASB Revised Proposals Would Cause Significant Lease Accounting Changes: http://www.bna.com/fasb-iasb-revised-n17179874062/ (Links to an external site.) Links to an external site.
New Accounting Proposal on Leasing Portends Big Changes: http://dealbook.nytimes.com/2013/05/16/significant-changes-proposed-in-lease-accounting/ (Links to an external site.) Links to an external site.
Leases: Final Approach or Go-around?: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/leases-final-approach-or-go-around.pdf (Links to an external site.) Links to an external site.
New Lease Standards May Demand Two Sets of Books: http://ww2.cfo.com/gaap-ifrs/2016/01/new-lease-standards-may-demand-two-sets-books/ (Links to an external site.) Links to an external site.
New Accounting Standards Will Affect Lease Reporting: http://www.truckinginfo.com/article/story/2015/12/new-accounting-standards-will-affect-lease-reporting.aspx (Links to an external site.) Links to an external site.
Congress of the United States: https://www.reit.com/sites/default/files/media/Files/Policy/Letter-to-FASB-re-Lease-Accounting-5-17-12.pdf (Links to an external site.) Links to an external site.
Proposed Lease Standard Facing Congressional Opposition: http://www.schneiderdowns.com/proposed-lease-standard-facing-congressional-opposition (Links to an external site.) Links to an external site.
All Systems Go for FASB Lease Accounting Overhaul: http://www.accountingweb.com/aa/standards/all-systems-go-for-fasb-lease-accounting-overhaul (Links to an external site.) Links to an external site. In depth:
The leasing standard - A comprehensive look at the new model and its impact: http://www.pwc.com/us/en/cfodirect/publications/in-depth/fasb-lease-accounting-model-asc-842.html (Links to an external site.) Links to an external site.
IASB issues leases standard; FASB to follow: http://www.cgma.org/magazine/news/pages/iasb-issues-leases-standard-201613694.aspx?TestCookiesEnabled=redirect (Links to an external site.) Links to an external site.
FASB Lease Accounting: http://proleasesoftware.com/integrated-modules/lease-module/fasb-lease-accounting/?gclid=CJH-3PWTvMsCFUI6gQod4AcOag (Links to an external site.) Links to an external site.
New lease Accounting Standards are coming. Will you be ready?: http://www.visuallease.com/fasb?gclid=CLvf0rKUvMsCFU0vgQodpbsLXg (Links to an external site.) Links to an external site.
New FASB Lease Standard Could Inflate Balance Sheets: http://ww2.cfo.com/accounting-tax/2016/02/new-fasb-lease-standard-inflate-balance-sheets/ (Links to an external site.) Links to an external site.
The Final Paper Must be five to seven double-spaced pages in length, excluding the title page and reference page and formatted according to APA style as outlined in the Ashford Writing Center. Must include a title page with the following: Title of paper Student’s name Course name and number Instructor’s name Date submitted Your paper should cite five of the research links above and include an in text citation, a quote from the article. Must use at least five scholarly sources listed above. Be sure to integrate your research (Links to an external site.) Links to an external site. rather than simply insert it. Must document all sources in APA style as outlined in the Ashford Writing Center and here (Links to an external site.) Links to an external site. and here (Links to an external site.) Links to an external site. . Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.
Explanation / Answer
1) Explain the present rules for evaluating a lease and whether it is capitalized or not.
There are 3 methods of evaluating the lease:
1- Present value method
Under this method; the present value of lease rentals are placed in comparison to the present value of cost of the asset acquired through market, may be from the money borrowed as a loan. In this case, the lease rentals, their tax advantage along with the repayment of principal and interest payments and the advantage of tax through depreciation, all these play a crucial role in evaluation.
2- Cost of Capital method
In this metod, a prior selection of a discount rate is not required. The rate of cost of capital is calculated for the installments and compared to cost of capital of the other alternative financing options such as fresh issue of shares, retained earnings, loans etc. The lease option is feasible only when it's rate is lower than the rate of other borrowings we just mentioned.
3- Bower-Herringer-Williamson Method
Under this method, the financing through lease is looked into using 2 ways, the financial aspects and the tax aspects i.e. the financial advantage/disadvantage of leasing compared to it's operating advantages and disadvantages. This method isn't commonly used for calculations.
Talking of whether the leases are to be capitalised or not;
2016 onwards, FASB ( Financial Accounting Standards Board) revised the standard for leasing and allowed companies to capitalise all leases above 1 year in their financial statements effective Dec15, 2018. The revised standard also put across guidelines for the application of new rules which are to be abided by the companies to take advantage of this new ruling.
2) Explain the new lease accounting rules.
The FASB gave a new ruling in Feb, 2016 which brought about dramatic changes to the balance sheets of the lessees and a new revenue recognition method.
Lessees are entitled to reflect the leases of more than 12 months, on their balance sheets. This ruling will prevail along the present guidelines mentioned under GAAP for measurements, expense and revenue recognitions, etc except that it will allow both operating and financial leases to be shown on the balance sheet. It also highlights the important disclosures for investors and other interested,related parties to the financial statements.
3) What affect will these new rules have on the balance sheet, the income statement and the cash flow statement?
Impact on:
Balance sheet: More than billions of dollars worth assets and liabilities will reflect on the balance sheets of the companies. The ratios like asset turnover, return on assets and qick ratio shall certainly show a major shift due to this change.
Income statement: Profitability will be affected with new revenue recognition and expense rules. Earnings per share and other ratios will be impacted due to the change.
Cash flow statement: The total cash flows wouldn't be impacted but there will be items within the lines which would change. It should reduce the operating cash flows while the financial cash flows shall jump up.
4) What industries would be affected more than others?
The companies with major operational lease obligations shall be impacted the most. AT&T, Wal-Mart, FedEx Corps are few of the examples of such companies. As of now, it may be said that not much of a change is expected in the leasing behavior of the organisations but there may be things coming up to everyone's surprise.