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Client Response Brief

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Submitted By sprabhakar
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Response to Client Request I
Sharad Prabhakar ACC 541/Accounting theory and research
January 17, 2011
Heber Howard

Memo

To: Mr. Supervisor
From: Sharad Prabhakar
Date: January 17th, 2011
Re: ABC Trucking Co. assignment results
Message:
These are the results of the assignment given to me by you last week regarding ABC Trucking company potential new client. I have done the required research on the Financial Accounting Standards Board (FASB) website regarding lease structures and current practices as it would relate to the specific issue at hand with ABC Trucking. All my research has shown that leasing would be an optimum option for the company to consider when leasing the extra trucks according to the requirement of the new potential client. Some of the benefits of leasing are that they will be able to finance all of the cost of the additional trucks without having to use of their own cash, they will be able to keep the trucks off their balance sheet if they choose an operating lease, and a lease will protect them when the trucks will became old and obsolete. Basically, there are two types of leases that ABC Trucking can choose from, below is a brief description and requirements of each: 1. Capital Lease: this is when the agreement for the lease is designed for the lessee acquires the assets and the end of the lease. From ABC Trucking’s perspective, they will be entering into a capital lease if it meets any one of the following four conditions as in paragraph 840-10-25-1 of the FASB Codification: (1) At the end of the lease, the lessee becomes the owner of the asset (2) The lease give lessee an choice to purchase the asset for a price that is cheaper than the fair value as dictated by the market forces of the asset (3) The duration of the lease is for a time period which is 75 percent or greater of the estimate time for what

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