The Financial Statement Accounts for an Entitys Assets - Research Paper Example

Liabilities for a banking institution are deposits, borrowings, deferred tax, and other classes of liabilities. Deposits refer to clients’ money that is kept with the bank while borrowings are cash and cash equivalents that a banking institution may borrow from other sources such as other commercial banks and the Federal Bank (Union Bank, 2011). Liabilities of a magazine publisher, like those of a newspaper publisher, are however diverse and can be explored in terms of current liabilities and long-term liabilities. Current liabilities of the form of business organization are creditors, accrued payroll, prepaid subscriptions, accrued expenses, and outstanding taxes. Portions of long-term debts and lease liabilities that fall due in a given accounting period also form part of the publishers’ short-term liabilities. Long-term liabilities for the form of business include “long-term debt and capital lease obligations,” “pension benefits obligations,” and “post-retirement benefits obligations” among other long-term commitments (New York Times, 2012, p. 55). Current liabilities of a departmental store such as Macy’s departmental stores however include “short-term debt,” “merchandise accounts payable,” “accounts payable and accrued liabilities,” “income taxes and differed income taxes” and outstanding taxes while long-term liabilities are long term debts, outstanding taxes and other forms of long term liabilities (Macy’s, 2012, F-5).
Borrowings and outstanding taxes are the common types of liabilities for the three forms of organizations while accounts payable, accrued expenses, accrued liabilities, and long-term debts are common elements among magazine publishing organizations and departmental stores. Deposits are however unique for a banking institution while prepaid subscriptions are unique for a magazine publishing organization’s balance sheet and merchandise accounts payable are unique among departmental stores (Union Bank, New York Times, Macy’s, ).
Project 2: A report for Alcenon’s management
The Corporation leases a large percentage of its operational assets. The choice to make operating leases as opposed to capital leases has aimed at keeping lease debts out of the organization’s balance sheet to attain low debt rations in financial reports. Alcenon is currently negotiating a 10-year lease on an asset whose anticipated useful life is 15 years. Terms of the lease require ten annual lease payments at $ 20000 per year. The first installment is due at the beginning of the lease term and the value of the leased asset is $ 135180. There is no provision for transfer of title to the lessee and no provision for a bargain purchase. Decision into accounting for the lease as an operating lease must however be based on accounting and legal provisions that the management must be informed of. This report explores relevant provisions to account for the lease and makes recommendations to the management.
Accounting concepts for the professional and legal regulation of accounting for asset lease differentiate between a capital lease and an operating lease and knowledge of the differences must be identified before the corporation classifies the lease. One of the factors that the management should consider is the lease duration relative to the asset’s expected useful life and account for the lease as an operating lease if the useful life is less than 75 percent of the asset’s useful life. A lease should also be accounted for as an operating lease if the lease agreement does not transfer right over the property to the lessee upon the expiry of the lease period. Further, a lease is considered an operating lease if there does not exist a high probability that ownership of the property will be transferred and an alternative for such a bargain is not included in the lease agreement. Similarly, a lease can be accounted for under an operating lease if the present lease payment is equal to or less than 90 percent of the asset's market value. Failure of a lease to meet any of the conditions classifies it as a capital lease (Wahlen, Stickney, Baginski, and Bradshaw 2011; Harrison and Horngren, 2008).
Terms of the lease meet conditions for accounting for the lease as an operating lease except for the lease payment value which is more than 90 percent of the asset value. The lease period is however about 67 percent of the asset’s useful life, and there is no provision for transfer of ownership or bargain for ownership transfer. This report, therefore, recommends a capital lease classification because operating lease classification will violate accounting provisions. Read More