Power Station Case Study

TO: xxxx, CFO FROM: xxxx, Senior Accountant DATE:June 30, 2009 SUBJECT: news report for Leasing Arrangement with susceptibility Corporation As you requested, I run through analyzed the proposed leasing arrangement with zero Corp. Based on my analysis, the vanquish pickax is to leverage the turbines quite than think on them. OVERVIEW: occasion home is contemplating whether to enter into a sale- pick out fend for consummation with nada Corporation. causality property will debauch turbines and nowadays move them to verve Corp. who will then lease them back to Power home. According to the regulations, Power Station is required to leverage and take title to the turbines. At the end of the 5-year lease term, Power Station has the option to buy the equipment at fair securities industry value. If the option is non exercised, Power Station is responsible for de-installation personify ($7 million) and the cost to ship and install the equipment at a new position ($7.3 million). ISSUE: Whether Power Station should lease the turbines through Energy Corporation using a sales-leaseback deed? At the polish of the lease, should Power station exercise the purchase option to buy the equipment?

ANALYSIS: The leasing arrangement is considered a sale-leaseback traffic because it involve[s] the sale of prop by the owner and the lease of the property back to the seller (FAS 28, 1976, ¶2). The lease agreement is classified as an operating lease because it does involve a transfer of ownership, a bargain purchase option, a term of greater than 75% of the turbines effectual life, o r minimum lease payments that kick the buck! et 90% of the equipments fair value (1976, ¶7). Power Station would patently record a credit to cash and a calculate to lease expense for the payment amount distributively of the 5 years in the lease term. Power Stations may benefit from entering into the sale-leaseback transaction because the turbines would not ca-ca to be reported on the balance sheet, which would jockstrap conceal their current and debt-to-equity...If you want to get a replete essay, tramp it on our website: BestEssayCheap.com

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