...relating to direct financing, sales type and operating leases in regards to lease types and structure by the Financial Accounting Standards Board (FASB). A lease is defined as a contractual agreement a lessor and a lessee. The lessor is the organization who owns the property or asset, in this situation trucks. The lessee is the company that wishes rent the asset, trucks, for specific amount of time. For accounting purposes, operating or capital lease, the type of lease must be determined. There are four criteria used to determine the type of lease and the accounting method used in conjunction with each. The four criteria are: 1. Transfer of Ownership by which the asset is transferred to the lessee at the end of the lease term. 2. Bargain purchase option where the lease agreement contains a an option for the lessee to purchase the asset at a significantly reduce price below fair market value. 3. The lease term is equal to or greater than 75 percent of the estimated economic life of the asset, unless the lease begins during the last 25 percent of the asset’s economic life. 4. Minimum lease payments are equal to or greater than 90 percent of the fair market value of the asset at the onset of the lease agreement. This excludes associated costs such as insurance, maintenance and taxes paid by the lessor. (Financial Accounting Standards Board, 2008 section 840-10). Minimum lease payment calculation does not pertain if the lease is entered in the last 25 percent of the...
Words: 953 - Pages: 4
...3303 | CAPITAL LEASE vs. OPERATING LEASE | | Dr. Serge Ryno ACCT 3303 December 2, 2011 Capital Lease vs. Operating Lease Firms often choose to lease long-term assets rather than buy them for a variety of reasons including the tax benefits that are greater to the lessor than the lessees and leases offer more flexibility in terms of adjusting to changes in technology and capacity needs. Lease payments create the same kind of obligation that interest payments on debt create, and have to be viewed in a similar light. If a firm is allowed to lease a significant portion of its assets and keep it off its financial statements, an examination of the statements will give a very misleading view of the company's financial strength. Consequently, accounting rules have been devised to force firms to reveal the extent of their lease obligations on their books. There are two ways of accounting for leases. In an operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor. Since the lessee does not assume the risk of ownership, the lease expense is treated as an operating expense in the income statement and the lease does not affect the balance sheet. In an operating lease, a company pays a periodic fee for the use of some benefit. The benefit can be tangible, such as office space, or intangible, such as a patent. The company acquiring the lease takes no ownership...
Words: 1490 - Pages: 6
...Financial Indicators Decision Making Simulation Form Date: 2012 What cost cutting options were chosen? Explain why those were chosen? The two cost cutting options chosen were reducing agency staff and changing the mix skill. By reducing contract nurses and other personnel, the Elijah Health Center (EHC) will have a huge cost saving. The salaries of the agency staff are twice that of the regular hospital employees. Through reduction of agency staff, the hospital will also save on the premium it pays to the staffing agencies and their management fees. Changing the skill mix by hiring unlicensed assistive personnel is a good option for saving costs in the long run. This option allows nurses to delegate simple tasks such as feeding and moving patients to assistive unlicensed personnel in order to concentrate more on complicated tasks directly affecting patient care. Though there will be an increase in costs in the beginning, the revenue will increase in the following months. Unlicensed assistive personnel often called care assistants and patient care technicians, usually have 40 hours or less of hospital-based training. Which cost cutting loan option was chosen? Explain why. To help solve the hospital’s current cash flow problem, loan option 1 was chosen. In loan option 1, the interest rate is 9.45% and there is no prepayment limitation compared to option number two which has 9.00% interest rate and has a prepayment limitation of 6 months. EHC will be receiving...
Words: 1566 - Pages: 7
...Kaye Spotz HCS 405 June 18, 2012 Diana Schilling Simulation Review Simulation Review The object of the simulation review is to explore ways to bridge a working capital shortage, evaluate funding options for acquiring medical equipment, and evaluate funding options for capital expansion. These are common problems that face all businesses at one time or another and making the correct decisions determines which direction a business goes in prosperity or demise. PHASE I The cost cutting actions that I chose are reducing agency staff and changing the skill mix. When a business hires employees through an agency there are many added expenses that are paid, in some instances this is necessary for licenses positions; however, there are many duties that are performed by a nurse that could just as easily be performed by a nursing assistant, medical assistant, or another staff member. By being able to hire less qualified people to help out with the non essential duties of a nurse that would allow you to have fewer nurses on staff and the nurses you have would be performing duties that require their certification/license. I also chose loan option one because with the prospect of a large sum of money coming from Medicare this option offers no prepayment limit. Even though the interest is a little higher with this option, if it is paid off within three months rather than having to wait the six months with option two there is a great deal of money that can be saved there as...
Words: 1048 - Pages: 5
...Simulation Review Amber Gosney HCS/405 February 11, 2013 Paul Herskovitz Simulation Review This paper provides information regarding a simulation review that was intended to show how a hospital determines revenue and expenditures. The information was based on the Elijah Heart Center (EHC), and all decision was made with careful analysis of EHC employees, along with me. Capital Shortage In the simulation activity I chose two types of cost-cutting options. The first choice was to minimize the amount of agency staff within the facility. Contract laborers require more money for ‘hire’. Typically this higher pay is due to the fact that they are not usually offered ‘in-house’ benefits. Not all agency staffing has to be laid off. Hospital personnel can evaluate which positions are more pertinent, and keep those. Contract laborers are ‘hired’ on with the understanding of being ‘laid-off’ at some point. It is more legit to rid of or lesson those contractors versus those ‘in-house’. Furthermore, contract laborers are not as skilled as those ‘in-house’ laborers who consistently have direct care of patients. The second choice was to change the skill mix. While hiring unlicensed personnel may not be ideal, it would sure save money. Unlicensed personnel do not require as much pay because they are unlicensed, and do not hold as much training or education. Depending on the job duties, unlicensed personnel can be utilized in more than one setting...
Words: 1204 - Pages: 5
...Simulation Review Craig W. Pasanen HSC/405 April 16, 2013 Todd Brown Phase 1: Capital Shortage Elijah Heart Center (EHC) is a 140 bed facility that specializes in cardiac care, located in New York. It has fallen on hard times even though patient volume and profits are increasing quickly, however the profit margin is falling. The Chief Executive Office of ECH would like to reduce cost by $900,000 in one year. The author of this paper would recommend a few possible way of making this happen. The first step taken was to reduce agency staff personnel. Staffing agencies were created to provide health-care providers with talented health-care professionals to fill their demanding and challenging openings ("White Coat Medical Staffing", 2013). The main reason this was chosen was due to salary. Agency worker’s salaries are often twice that of a regular staff member. This move alone saved ECH over 2.4 million dollars in salaries and benefit for the agency workers. The second cost cutting step was to changing the skill mix; this was achieved by hiring nursing assistants at an average salary of $26,609 a year versus a registered nurse who makes $69,123 ("Salary.com", 2013). This resulted in an overall saving of 1.4 million dollars. So just by adjusting the staff ECH was able to save roughly 3.8 million dollars. In order to fund the changes it was decided that a loan needed to be secured. Loan options were presented and the decision was made to pick...
Words: 1173 - Pages: 5
...premiums they pay to the agencies. However deciding to reduce the length of stay was not such a great decision. This would only have a limited gain because there is no significant cost savings by implementing this strategy and the revenues will remain the same on the scale throughout the year. As far on the loan option to support my decisions I chose the first one which was the best option. There may be more interest paid on this loan, but it can be paid back anytime where in option two the loan couldn’t be paid back before six months. Next, I had to make a decision on whether to purchase new, refurbished, a capital lease, or operating lease hospital equipment. The equipment needed was an X-Ray machine, high speed CT scanner, and an ultrasound system. I decided to purchase a refurbished high speed CT scanner, a new X-Ray machine, and do a operating lease on the...
Words: 1081 - Pages: 5
...Simulation Review By: Jessie Vest HCS/405 11/21/2011 For this assignment we had to review the Analyzing Financial Indicators for Decision Making. I had to look at three different phases of the simulation review. During each phases there was different categories that I had to look into. So to begin things off I will be first talking about the first phase of the simulation review. During the first phase they ask which cost-cutting options did I select and why I selected them? The cost-cutting option that I selected was “Reducing Agency Staff and Changing the Skill Mix.” I had selected these because they made more since to me. When looking at the things I picked they really make since to me. Meaning why would you have an agency working for you when you can have your own employees picking up extra shifts and so forth. I was also thinking when I picked that topic that with reducing agency staffing my organization would also be saving a ton of money. When you use agency staffing you are spending a lot more then you would when just using your own employees. The second option that I picked was changing the skill mix. Meaning that with the more skills that you have the less money that you have to put out for all that training. Also with the skills that you do have you are able to do more of the skills that are required of you for your job and even more sometimes. I also believe that this was a good pick because a lot of organizations are requiring more skills but...
Words: 956 - Pages: 4
...“Representing over 20 percent of the U.S. Gross Domestic Product and accounting for approximately $1.5 trillion in revenue, health care is the single largest industry in the U.S. today.” (University of Phoenix, 2015). However, it is a vulnerable industry. The facility we are looking at is in New York, where the third highest losses in the country occur because of numerous problems dealing with Medicare and Medicaid reimbursements, cuts in funding, and pressures for discounted managed care, amongst others. The facility is called Elijah Heart Center (EHC). First we looked at the capital shortage because in an emergency, the hospital might not have enough cash to sustain itself. The challenge was to decide on the best strategy to solve the cash flow problem. The first think I thought of was how to make the needed cuts without sacrificing employees and their morale. Without your employees, you’ve got nothing. So, I looked at other options that wouldn’t sacrifice the team. The first one that came to mind was Reducing Agency Contracted Staff. They come at about double the price as the regular facility employees, there are fees that have to be paid to the staffing agencies they come from, and honestly, they won’t have the same level of commitment to your facility as your regular employees. Conveniently, this was a huge cost savings. Secondly, I chose to Change the Skill Mix. What this does is give the nurses a break from tasks that others can do. This allows the nurses to do tasks that...
Words: 1199 - Pages: 5
...[pic] Credit Application Form |Prepared by FAM (Name): Tarun Makhija |Date Prepared: 18.04.2012 | |BUSINESS INFORMATION | |Existing Customer: Yes No |Phoenix Customer No.: | |Lessee Name: (Full legal name of lessee) |No. of Employees: 500 | |i Media Corp Limited | | |Billing Address: Noida |Business Registration No.: | |Telephone No.: |Fax No.: |Website: | |Business Activities: Media |No. of Years in Business: 50 | |HP Segment: |Type of Business: |Parent Company: (if applicable) ...
Words: 292 - Pages: 2
...The Elijah Heart Center needs to make changes on cost-cutting, funding options for equipment, and funding options for capital expansion. Doing this simulation review it will show just how to go about making these changes to save money. I will explain as to why I choose what I did in this paper. The cost-cutting options I choose were changing the skill max and reducing agency staff. The reason as to why I choose changing the skill max is to allow the nurses to focus upon their more important tasks. Nurses do not need to be doing what another individual is capable of doing those people that do not have skills. Such as answering phones, faxing documents, scheduling appointments, and so on. Receptionists are mostly unskilled and do not require a lot of training, except hands on through the office training. The nurses and other skilled professionals need to focus more on the importance of their jobs by taking care of patients. Those who are unskilled do not expect to be paid like a skilled person; with this option it is saving money for the hospital. The second option I choose was to reduce agency staff that is contracted. It is stated in the cost cutting options menu that the agency staff salaries are double of what other staff in the hospital are getting paid. There is only a need for a few agency staff in the hospital. It would allow other people to have hospital jobs which are cheaper since they are not getting the doubled salary. Whenever a contracted worker is hired for any...
Words: 1307 - Pages: 6
...percentage into their benefits depending on what they already contribute. I also relies when going through the hiring process people are not only looking at the salary’s offered they are also looking at the benefits offered by the company so that may deter new hires if the percentage they contribute is too high. For the second question of phase I the loan option I selected was option 1. The outcome of my choice is the total interest paid out is $11,813 and the saved is $66,073, during the first quarter the hospital will save $811,249. During phase II the selections I chose was to purchase a refurbished high speed CT scanner, to have a capital lease on an X-ray machine, and a operating lease on an ultrasound machine. “When it comes to acquiring the medical equipment and supplies you need to run your practice, is it best to buy or lease? It’s an important decision for...
Words: 1087 - Pages: 5
...Simulation Review HCS/405 October 15, 2012 Simulation Review: Elijah Heart Center Healthcare can be considered one of the most profitable industries around today. This potential for revenue has made it very important to have a financial team that fully understands the workings of a healthcare organization. There are so many areas that can easily go wrong if the wrong financial decisions are made. Using the simulation helped one to understand the different outcomes possible when needing to make certain financial decisions that many organizations face today. Phase I: Capital Shortage The main problem with Elijah Heart Center is that although the center is doing well, it seems to be growing so fast that profitability is dropping. This is because of an increased patient volume and an increase in the wrong staff. The cost-cutting options that I selected were to reduce agency staff and changing the skill mix. I opted for “reducing proportion of agency contracted staff” because a large portion (almost twice that of employees directly hired by the hospital) of the revenue was being wasted in this area. The hospital pays premiums to staffing agencies that is just not necessary. Another thing to remember is that the skill level that these staffing agencies have is much lower when comparing them to the hospital staff, which have been there longer and are more experienced with patient care. I also chose to I noticed that once I selected this, the revenue...
Words: 1239 - Pages: 5
...MEMO To: Management Team From: Jacques Lamoureux, CGA, Date: ------------------------------------------------- Re: CRM system, draft financial statements, operational initiatives, and other issues The purpose of this memo is to discuss the operational initiatives and related risks, the draft financial statements, the CRM system and other issues that have arisen over the past year. Homes sales and other operational initiatives Further analysis needs to be done to determine the feasibility of both the home sales and the new candle line. Preliminary research suggests there is a market for scented candles; as several companies similar to FFI report increased sales of up to 5% with the addition of a candle line. However, the sales projections prepared by Mandy show a 20% increase in sales in the first year; this is significantly higher than the results experienced by others within the industry. An evaluation of how Mandy arrived at her projections is required. As it stands, FFI does not have the production capacity to produce a line of candles. Accordingly, a third party contractor will need to be engaged. There are several risks associated with contracting a third party. Specifically, FFI will have less control over quality and the contractor will have access to FFI’s secret recipes for potpourri. Also, the minimum order levels required by the contractors represent the majority of production; this would require a large upfront capital outlay. The home sales program...
Words: 1734 - Pages: 7
... 2011 Subject: FASB Lease Practices and Client Recommendation I have researched and analyzed the different Financial Accounting Standards Board (FASB) practices related to lease options, which our trucking client may want to consider in his or her new business opportunity. Leases are a way in which companies can finance a business project. According to the official FASB website, a lessor may record a lease transaction as a sales type lease, a direct financing lease, or an operating lease. A sales type lease and a direct financing lease are different ways to record a capital lease (Standards, 1976). One lease option the trucking client has is to record the leases as direct financing leases. Direct financing leases are recorded when the carrying value of the lease is equal to the fair value of the leased property at inception (Standards, 1976). This lease arrangement is a sales and financing transaction. When a direct financing lease is recorded, only the interest received is recognized on the lessors books as income. The cash outflow is equal to the carrying value of the asset, and the cash inflow is equal to the lease payments (CFA, 2011). Another lease option the trucking client has is to record the leases as sales type leases. A sales type lease is similar to a direct financing lease, except upon inception of the lease; profit on a sale is recognized. The profit recorded at the beginning of the lease term is the present value of the lease payments, less the cost...
Words: 802 - Pages: 4
