Princess Regional Trucking Company Essay

Princess Regional transport connection has been approached by a client with an luck that would require 120 trailers which is about 20 more than we currently own. We ar non sure how long the relationship with this client give last but this drive has the potential for considerable growth. I obligate a great deal of cultivation for you regarding engross options that Princess Regional Trucking company may want to consider sooner going forward with this deal.The first character reference of lead to consider is the choose financial backing plight. This bring is practiced by lessors in capital c all in all fors if the collections of minimum lease payments ar guaranteed and the amounts of unrefundable be ar known in advance. In this type of lease the margin will buy new trucks and lease them to us instead of Princess Regional Trucking Company borrowing the money to bribe the trucks. The direct financing approach is the corresponding as a loan. In decree to arrange this type of lease we moldinessiness show that the monthly payment will be met every month on duration. This can be done by putting up additions to go forward the payments practiced in case we cannot lease what is secured by the direct lease. Eliminating any question or doubt about the ability to cover the lease is the ultimate goal.If you would prefer to go with the Capital lease option then it must meet one of the quadruplet criteria according to FASB ASC 840-10-25-1. There has to be a transfer of ownership to the lessee by the curio of the lease shape, the lease contains a mint purchase option, the lease term is tinct to 75% or more of the estimated stinting life of the leased property, or the stick look upon at the seed of the lease term of the minimum lease payments, equals or exceeds 90% of the excess of the fair value of the leased property. If any of the four criteria is met and too meets both of these criterias in that the lease payments have to be reasonable and the cost to be incurred are also sure the lease is considered to be either direct financing or sales-type (http//highered.mcgraw-hill.com/sites/dl/ bleak/0073526878/588542/Codification_Updates.pdf)The next type of lease to be addressed is a sales-type lease. Just comparable the capital lease there are for criteria that must be met. If the manufacture or monger risks profit or injustice then this would be a sales-type lease. This would base that the seller would keep the assets in their origin while the manufacturer or dealer are still earning profit or taking a loss. Under FASB ASC 840-30-35-22 the lessor must amortize the unearned income on a sales-type lease to income over the lease term to produce a constant biennial rate of return on the unclutter investment in the lease.(http//highered.mcgraw-hill.com/sites/dl/ slack/0073526878/588542/Codification_Updates.pdf)Since the important part of a sales-type lease is the sale the initial direct costs of getting the lease is written stumble when the sale is recorded at the beginning of the lease. This would be noted on the income literary argument as a selling expense.The final type of lease option would be an operating lease. This type of lease allows custom of an asset but does not transfer ownership of the asset. The assets are expected to be returned at the end of the lease agreement. This lease would give Princess the sole right to use the asset however the lessee would retain all risks and rewards of ownership. It would be shown as a rental expense on the balance sheet. It is considered an asset for us and gets depreciated like any separate asset. This type of lease is usually terse term but it can be cancelled if needed.Thank you for taking the time to review these three different types of leases for the special trucks we need to satisfy our new customer. Since we are not certain the time environ of this relationship I would like to kick up going with the operating lease since it is mo re like a rental agreement.