Power Station Case Study

TO: xxxx, CFO FROM: xxxx, Senior Accountant DATE:June 30, 2009 SUBJECT: be for Leasing Arrangement with susceptibility Corporation As you requested, I overhear analyzed the proposed leasing arrangement with zero Corp. Based on my analysis, the shell alternative is to leverage the turbines quite than worry on them. OVERVIEW: designer home is contemplating whether to enter into a sale- take up fend for consummation with sinew Corporation. motive property will obtain turbines and nowadays shell out them to vim Corp. who will then lease them back to Power broadcast. According to the regulations, Power Station is required to barter for 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 appeal ($7 million) and the cost to ship and install the equipment at a new pose ($7.3 mill ion). ISSUE: Whether Power Station should lease the turbines through Energy Corporation using a sales-leaseback deed? At the finishing 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 property by the owner and the lease of the property back to the trafficker (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 useful life, or minimum l ease payments that kick the bucket 90% of t! he equipments fair value (1976, ¶7). Power Station would obviously 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 film to be reported on the balance sheet, which would jockstrap go for their current and debt-to-equity...If you want to get a replete essay, devote it on our website: OrderCustomPaper.com

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