15

Leases

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Accounting by the Lessor and Lessee
A lease is an agreement in which the lessor
conveys the right to use property, plant, or
equipment, usually for a stated period of
time, to the lessee.

Lessee
Lessee == Renter
Renter Lessor
Lessor == Owner
Owner of
of property
property

Lessee
Lessee Lessor
Lessor
Operating
Operating lease
lease Operating
Operating lease
lease
Capital
Capital lease
lease Capital
Capital lease
lease
Direct
Direct financing
financing lease
lease
Sales-type
Sales-type lease
lease
15 - 2
 Capital Leases and Installment Notes Compared
Matrix, Inc. acquires equipment from Apex, Inc. by paying
$193,878 every six months for the next three years. The interest
rate associated with the agreement is 9%. Let’s look at the
arrangement as an installment note payable and as a capital
lease agreement. First, let’s prepare an amortization schedule
for the payments.

Effective Decrease Outstanding

Date Payment Interest in Balance Balance
Initial value . . . . . . . . . . ......... $ 1,000,000
1 $ 193,878 $ 45,000 $ 148,878 851,122
2 193,878 38,300 155,578 695,544
3 193,878 31,300 162,578 532,966
4 193,878 23,983 169,895 363,071
5 193,878 16,338 177,540 185,532
6 193,878 8,346 185,532 -

15 - 3
 Inception of the Agreement
At inception January 1
Installment Note
Equipment 1,000,000
Notes payable 1,000,000

Capital Lease
Leased Equipment 1,000,000
Lease payable 1,000,000

15 - 4
 Classification Criteria
Operating Capital
Lease Lease

A capital lease must meet one of four criteria:

 Ownership
Ownership transfers to to the
the lessee
lessee at
at the
the end
end of of
the
the lease
lease term,
term, or
or .. .. ..
AA bargain purchase option (BPO) (BPO) exists,
exists, or
or .. .. ..
 The
The non-cancelable
non-cancelable lease
lease term
term is
is equal
equal to to 75%
or more of of the
the expected
expected economic
economic lifelife of
of the
the
asset,
asset, or
or .. .. ..
 The
The PV
PV of
of the
the minimum
minimum lease
lease payments
payments (MLP) (MLP)
is
is 90% or more of the fair value of of the
the asset.
asset.
15 - 5
 Classification Criteria
A bargain purchase option (BPO) gives the lessee the
right to purchase the leased asset at a price significantly
lower than the expected fair value of the property and the
exercise of the option appears reasonably assured.

The lease term is normally considered to be the non-

cancelable term of the lease plus any periods covered by
bargain renewal options. If the inception of the lease
occurs during the last 25% of an asset’s economic life,
this criterion does not apply.

For the lessee, a capital lease is treated as the purchase

of an asset – the lessee records both an asset and
liability at inception of the lease.
15 - 6
 Additional Lessor Conditions
The four conditions discussed apply to both the lessee
and lessor. However, the lessor must meet two
additional conditions for the lease to be classified as
either a direct financing or sales-type lease:
1. The collectibility of the lease payments must be
reasonably predictable.
2. If any costs to the lessor have yet to be incurred, they
are reasonably predictable. Performance by the lessor is
substantially complete.

Lessor = Owner of the property subject to the lease.

15 - 7
 U. S. GAAP vs. IFRS
Lease accounting under U.S. GAAP and IFRS provides a
good general comparison of “rules-based accounting” as
U.S. GAAP often is described and “principles-based
accounting” which often is the description assigned to IFRS.

• Situations that normally would lead

• Lease classification rules.
to classification as a finance lease
1. Same as IFRS.
are:
2. 75% or more of assets life.
1. Contains a BPO
3. “Substantially all means 90%
or more. 2. Term is “major portion” of asset’s
life.
4. Title transfers.
3. PV of MLP greater than
“substantially all” of the fair value of
the asset.
4. Other circumstances impact
classification.
15 - 8
 Operating Leases

Lease
Lease Criteria
Criteria for
for aa
agreement
agreement capital
capital lease
lease
exists.
exists. not
not met.
met.

Record
Record lease
lease as
as
an
an Operating
Operating
Lease. Capital
Lease.
Lease

15 - 9
 Operating Leases
On
On January
January 1,1, 2011,
2011, Sans
Sans Serif
Serif Publishers,
Publishers, Inc.,
Inc., aa computer
computer services
services
and
and printing
printing firm,
firm, leased
leased aa color
color copier
copier from
from CompuDec
CompuDec Corporation.
Corporation.
The
The lease
lease agreement
agreement specifies
specifies four
four annual
annual payments
payments of of $100,000
$100,000
beginning
beginning January
January 1, 1, 2011,
2011, the
the inception
inception of of the
the lease,
lease, and
and at
at each
each
January
January 11 thereafter
thereafter through
through 2014.The
2014.The useful
useful life
life of
of the
the copier
copier is
is
estimated
estimated toto be
be six
six years.
years. Before
Before deciding
deciding to to lease,
lease, Sans
Sans Serif
Serif
considered
considered purchasing
purchasing the the copier
copier for
for its
its cash
cash price
price ofof $479,079.
$479,079. IfIf funds
funds
were
were borrowed
borrowed to to buy
buy the
the copier,
copier, the
the interest
interest rate
rate would
would have
have been
been 10%.
10%.

At End of the Four Payment Dates

San Serif Publishers, Inc. (Lessee)
Prepaid rent 100,000
Cash 100,000

CompuDec Corporation (Lessor)

Cash 100,000
Unearned rent revenue 100,000
15 - 10
 Leasehold Improvements
Sometimes a lessee will make improvements to
leased property that reverts back to the lessor at
the end of the lease. Like other assets, leasehold
improvement costs are allocated as depreciation
expense over its useful life to the lessee, which is
to be the shorter of the physical life of the asset
or the lease term.

15 - 11
 Capital Leases – Lessee and Lessor
The amount recorded (capitalized) is the
present value of the minimum lease payments.
However, the amount recorded cannot exceed
the fair value of the leased asset.

In calculating the present value of the minimum

lease payments, the interest rate used by the
lessee is the lower of:
1. Its incremental borrowing rate, or
2. The implicit interest rate used by the lessor.

15 - 12
 Capital Leases – Lessee and Lessee

If the lessor is not a manufacturer or

dealer, the fair value of the leased
asset typically is the lessor’s cost.
When the lessor is a manufacturer or
dealer, the fair value of the property at the
inception of the lease is likely to be its
normal selling price.

15 - 13
 Capital Leases – Lessee and Lessor
• On January 1, 2011, Sans Serif Publishers, Inc., leased a copier from First
Lease Corp. First Lease purchased the equipment from CompuDec
Corporation at a cost of $479,079.
• The lease agreement specifies annual payments beginning January 1, 2011,
the inception of the lease, and at each December 31 thereafter through
2015.The six year lease term ending December 31, 2016,is equal to the
$479,079
estimated ÷ 4.79079*
useful life = $100,000 rental payments.
of the copier.
• First *PV
*PV
Leaseof
of an
an annuity due
due of
of $1:
annuityacquires
routinely $1: nn == 6,
6, II ==equipment
electronic 10%
10% for lease to other firms. The
interest rate In these financing arrangements is10%.
• Since$100,000 × 4,79079*
the lease term is equal to=the $479,079 lessee’s
expected useful life ofcost
the copier (>75%),
the transaction must be recorded by the lessee as a capital lease. lease
• We believe the collectibility of the lease payments is reasonably certain and
any costs to the lessor that are yet incurred are reasonably predictable, this
qualifies also as a direct financing lease to First Lease. To achieve its
objectives, First Lease must (a) recover its $479,079 investment as well as (b)
earn interest revenue at a rate of 10%. So, the lessor determined that annual
rental payments would be $100,000.

15 - 14
 Capital Leases – Lessee and Lessor
Direct Financing Lease (January 1, 2011)
San Serif Publishers, Inc. (Lessee)
Leased equipment (PV of payments) 479,079
Lease payable (PV of payments) 479,079

First Lease Corp. (Lessor)

Lease receivable (PV of payments) 479,079
Inventory of equipment (Lessor’s cost) 479,079

First Lease Payment (January 1, 2011)

San Serif Publishers, Inc. (Lessee)
Lease payable 100,000
Cash 100,000

First Lease Corp. (Lessor)

Cash 100,000
Lease receivable 100,000

15 - 15
 Capital Leases – Lessee and Lessor
Amortization Schedule for the Lease
Effective Decrease in Outstanding
Date Payment Interest Balance Balance
1/1/11 $ 479,079
1/1/11 $ 100,000 $ - $ 100,000 379,079
12/31/11 100,000 37,908 62,092 316,987
12/31/12 100,000 31,699 68,301 248,686
12/31/13 100,000 24,869 75,131 173,554
12/31/14 100,000 17,355 82,645 90,910
12/31/15 100,000 9,090 * 90,910 -
$ 600,000 $ 120,921 $ 479,079
*Rounded.

$379,079
$379,079 -- $62,092
$62,092 == $316,987
$316,987
$379,079
$379,079 ×× 10%
10% == $37,908
$37,908
$100,000
$100,000 -- $37,908
$37,908 == $62,092
$62,092
15 - 16
 Capital Leases – Lessee and Lessor
Second Lease Payment (December 31, 2011)
San Serif Publishers, Inc. (Lessee)
Interest expense 37,908
Lease payable 62,092
Cash 100,000

First Lease Corp. (Lessor)

Cash 100,000
Lease receivable 62,092
Interest revenue 37,908

Depreciation Recorded at (December 31, 2011)

San Serif Publishers, Inc. (Lessee)
Depreciation expense 79,847
Accumulated depreciation 79,847

($479,079 ÷ 6 = $79,847 Assuming straight-line method.)

15 - 17
 Capital Leases – Lessee and Lessor

Depreciation Period
The lessee normally should depreciate a
leased asset over the term of the lease.
However, if ownership transfers or a
bargain purchase option is present (i.e.,
either of the first two classification criteria is
met), the asset should be depreciated over
its useful life.

15 - 18
 Sales-Type Leases
If the lessor is a manufacturer or dealer, the
fair value of the leased asset generally is higher
than the cost of the asset.
At
At inception
inception of
of the
the lease,
lease, the
the lessor
lessor will
will
record
record the
the Cost
Cost of
of Goods
Goods Sold
Sold as
as well
well as
as the
the
Sales
Sales Revenue
Revenue (PV
(PV of
of payments).
payments).

In addition to interest revenue earned over the

lease term, the lessor receives a manufacturer’s
or dealer’s profit on the “sale” of the asset.

15 - 19
 Sales-Type Leases
On January 1, 2011, Sans Serif Publishers, Inc., leased
a copier from CompuDec Corp. at a price of $479,079.
The lease agreement specifies annual payments of
$100,000 beginning January 1, 2011 (the inception of
the lease), and at each December 31 thereafter through
2015. The six year lease term ending December 31,
2016, is equal to the estimated useful life of the copier.
CompuDec manufactured the copier at a cost of
$300,000.
CompuDec’s interest rate for financing the
transaction is10%.

15 - 20
 Sales-Type Leases
Lease Classification
1. The lease term (6-years) is equal to 100% of the useful life of
the copier, and
2. Fair market value is difference from cost of the leased asset.
3. CompuDec is certain about the collectibility of the lease
payments, and
4. No costs are to be incurred by CompuDec relating to the
lease agreement,

SO
The lease agreement is classified as a Sales-Type lease from
the viewpoint of CompuDec (lessor) and a capital lease from
the viewpoint of Sans Serif Publishers (lessee).

15 - 21
 Sales-Type Leases: Lessee
At inception of the Lease – January 1, 2011
CompDec Corp. (Lessor)
Lease receivable 479,079
Cost of goods sold 300,000
Sales revenue 479,079
Inventory of equipment 300,000

Receipt of the First Lease Payment – January 1, 2011

CompDec Corp.(Lessor)
Cash 100,000
Lease receivable 100,000

15 - 22
 Bargain Purchase Options
O
and Residual Value k
y
A bargain purchase option (BPO) is a provision of some m
h
lease contracts that gives the lessee the option of a
purchasing the leased property at a bargain price. The a
expectation that the option price will be paid effectively u

adds an additional cash flow to the lease for both the

lessee and the lessor. As a result:
LE
LESSEE
LESSEE adds
adds the
the present
present value
value ofof the
the BPO
BPO price
price to
to the
the present
present value
value of
of ha
periodic
periodic rental
rental payments
payments when
when computing
computing the
the amount
amount toto be
be recorded
recorded aa se
leased
leased asset
asset and
and aa lease
lease liability.
liability. ak
se
LESSOR,
LESSOR, when
when computing
computing periodic
periodic rental
rental payments,
payments, subtracts
subtracts thethe present
present LE
value
value of
of the
the BPO
BPO price
price from
from the
the amount
amount toto be
be recovered
recovered (fair
(fair value)
value) to
to be
determine
determine the
the amount
amount that
that must
must be
be recovered
recovered from
from the
the lessee
lessee through
through the
the da
periodic
periodic rental
rental payments.
payments. un
da
15 - 23 be
 Bargain Purchase Option (BPO)
On January 1, 2011, Sans Serif Publishers, Inc., leased a color copier from
CompuDec Corporation at a price of $479,079. The lease agreement specifies
annual payments beginning January 1, 2011, the inception of the lease, and at
each December 31 there after through 2015. The estimated useful life of the
copier is seven years. On December 31, 2016, at the end of the six year lease
term, the copier is expected to be worth $75,000, and Sans Serif has the option to
purchase it for $60,000 on that date. The residual value after seven years is zero.
CompuDec manufactured the copier at a cost of $300,000 and its interest rate for
financing the transaction is10%.
Lessee's calculation of PV of MLP:
PV of periodic payments $ 92,931 × 4.79079 = $ 445,211
Plus: PV of BPO 60,000 × 0.56447 = 33,868
PV of MLP $ 479,079
Lessor's calculation of rental payments:
Fair market value of asset $ 479,079
Less: PV of BPO $ 60,000 × 0.56477 = (33,886)
Amount recoverd through payments $ 445,193
PV annuity due factor, n = 6, I = 10% ÷ 4.79079
Rental payments at beginning of period $ 92,927
15 - 24
 Bargain Purchase Option (BPO)
Effective Decrease in Outstanding
Date Payment Interest Balance Balance
1/1/11 $ 479,079
1/1/11 $ 92,931 $ - $ 92,931 386,148
12/31/11 92,931 38,615 54,316 331,832
12/31/12 92,931 33,183 59,748 272,084
12/31/13 92,931 27,208 65,723 206,361
12/31/14 92,931 20,636 72,295 134,067
12/31/15 92,931 13,407 79,524 54,542
$ 557,586 $ 133,049 $ 424,537

Exercise of BPO at the end of the lease term:

$54,542 × 10% = $5,458*
$60,000 BPO payment - $5,458 = $54,542

15 - 25
 Bargain Purchase Option (BPO)
End of Lease – December 31, 2016
Sans
Sans Serif
Serif Publishers,
Publishers, Inc.
Inc. (Lessee)
(Lessee)
Depreciation
Depreciation expense
expense ($479,079
($479,079 ÷÷ 7)
7) 68,440
68,440
Accumulated
Accumulated depreciation
depreciation 68,440
68,440

Interest
Interest expense
expense 5,458
5,458
Lease
Lease payable
payable 54,542
54,542
Cash
Cash (BPO
(BPO payment)
payment) 60,000
60,000

CompDec
CompDec Corporation(Lessor)
Corporation(Lessor)
Cash
Cash 60,000
60,000
Lease
Lease receivable
receivable 54,582
54,582
Interest
Interest revenue
revenue 5,458
5,458

Refer
Refer the
the amortization
amortization schedule
schedule and
and
computations
computations on
on the
the previous
previous screen
screen
15 - 26
 Residual Value
The residual value of leased property is an estimate of what
its commercial value will be at the end of the lease term.
On January 1, 2011, Sans Serif Publishers, Inc., leased a color copier
from CompuDec Corporation at a price of $479,079. The lease
agreement specifies annual payments beginning January 1, 2011, the
inception of the lease, and at each December 31 thereafter through
2015.The estimated useful life of the copier is seven years. At the end
of the six year lease term, ending December 31, 2016, the copier is
expected to be worth $60,000. CompuDec manufactured the copier at a
cost of $300,000 and its interest rate for financing the transaction
is10%.

15 - 27
 Effect on the Lessee of a Residual
Value
Guaranteed Residual Value
Guaranteed Residual Value
Sometimes
Sometimes the the lease
lease agreement
agreement includes
includes aa guarantee
guarantee byby the
the lessee
lessee
that
that the
the lessor
lessor will
will recover
recover aa specified
specified residual
residual value
value when
when custody
custody of of
the
the asset
asset reverts
reverts back
back toto the
the lessor
lessor atat the
the end
end of
of the
the lease
lease term.
term. This
This
not
not only
only reduces
reduces the
the lessor’s
lessor’s risk
risk but
but also
also provides
provides incentive
incentive for
for the
the
lessee
lessee to
to exercise
exercise aa higher
higher degree
degree of of care
care in
in maintaining
maintaining the
the leased
leased
asset
asset to
to preserve
preserve the
the residual
residual value.
value.
Lessee's calculation of PV of MLP:
PV of periodic payments $ 92,931 × 4.79079 = $ 445,211
Plus: PV of residual value 60,000 × 0.56447 = 33,868
PV of MLP $ 479,079

PV
PV factor
factor of
of an
an annuity
annuity due
due of
of $1:
$1: n=6,
n=6, i=10%
i=10%
PV
PV factor
factor of
of $1:
$1: n=6,
n=6, i=10%
i=10%

15 - 28
 Effect on the Lessee of a Residual
Value
Unguaranteed Residual Value
A lease agreement may be silent as to the question of
residual value. This is referred to as an unguaranteed
residual value. In the case of unguaranteed residual
value, the lessee is not obligated to make any payments
other than the periodic rental payments. As a result, the
present value of the minimum lease payments — recorded
as a leased asset and a lease liability — is simply the
present value of periodic rental payments ($445,211). The
same is true when the residual value is guaranteed by a
third-party guarantor such as an insurance company.

15 - 29
 Effects on the Lessor of a Residual
Value
Guaranteed Residual Value
When
When the the residual
residual value
value is
is guaranteed,
guaranteed, the the lessor
lessor as
as well
well as
as the
the
lessee
lessee views
views itit as
as aa component
component of of minimum
minimum lease
lease payments.
payments. In In fact,
fact,
even
even ifif itit is
is not
not guaranteed,
guaranteed, thethe lessor
lessor still
still expects
expects to
to receive
receive itit in
in the
the
form
form of
of property,
property, or
or cash,
cash, or
or both.
both.
Lessor's calculation of rental payments:
Fair market value of asset $ 479,079
Less: PV of residual value $ 60,000 × 0.56447 = (33,868)
Amount recoverd through payments $ 445,211
PV annuity due factor, n = 6, I = 10% ÷ 4.79079
Rental payments $ 92,931

15 - 30
 Residual Value Guaranteed
Let’s use our previous example of a sales-type lease and replace
the bargain purchase option with a guaranteed residual value.

Sales-Type Lease – January 1, 2011

San Serif Publishers, Inc. (Lessee)
Leased equipment 479,079
Lease payable 479,079

CompDec Corporation (Lessor)

Lease receivable 479,079
Cost of goods sold 300,000
Sales revenue 479,079
Inventory of equipment 300,000

15 - 31
 Residual Value Guaranteed
First Lease Payment – January 1, 2011
San Serif Publishers, Inc. (Lessee)
Lease payable 92,931
Cash 92,931

CompDec Corporation (Lessor)

Cash 92,931
Lease receivable 92,931

15 - 32
 Residual Value Guaranteed
December 31, 2015 Recorded cost of leased asset $ 479,079
Guarantted residual value (60,000)
San Serif Publishers, Inc. (Lessee) Basis for depreciation 419,079
Depreciation expense 68,847 Useful life in years ÷ 6
Accumulation depreciation 68,847 Annual depreciation $ 69,847

Interest expense 13,407

Lease payable 79,524
Cash 92,931

CompDec Corporation (Lessor)

Cash 92,931
Interest revenue 13,407 See amortization
Lease receivable 79,524 schedule

15 - 33
 Treatment of Residual Value
Lessor Lessee
Computation of Minimum Lease Minimum Lease
Residual value in leased asset? Lease Payment Payment Payment
Lessee gets the residual value (by transfer of
title or a BPO) No No No
Lessor get the residual value (title does not
transfer; no BPO)
Residual value is not guaranteed. Yes No No
Residual value is guaranteed by lessee. Yes Yes Yes
Residual value is guaranteed by a third party. Yes Yes No

15 - 34
 Executory Costs
One of the responsibilities of ownership that is
transferred to the lessee in a capital lease is the
responsibility to pay for maintenance, insurance,
taxes, and any other costs associated with
ownership. These are referred to as executory
costs.
costs
The lessee records executory costs as incurred:
Sans Serif Publishers, Inc. (Lessee)
Maintenance expense 2,000
Cash 2,000

15 - 35
 Discount Rate
One rate is implicit in the lease agreement. This is the
effective interest rate the lease payments provide the
lessor over and above the price at which the asset is
sold under the lease. It is the desired rate of return the
lessor has in mind when deciding the size of the lease
payments. Usually the lessee is aware of the lessor’s
implicit rate or can infer it from the asset’s fair value.
When the lessor’s implicit rate is unknown, the lessee
should use its own incremental borrowing rate. This is
the rate the lessee would expect to pay a bank if funds
were borrowed to buy the asset.

15 - 36
 Lessor’s Initial Direct Costs

Incremental costs incurred by the lessor in

negotiating and consummating a lease agreement.
• Operating Leases − Capitalize and amortize over
the lease term by the lessor.
• Direct Financing Leases − Include as part of
investment balance.
• Sales-Type Leases – The initial direct costs are
expensed at the inception of the lease.

15 - 37
 Contingent Rentals
Sometimes rental payments may be
increased (or decreased) at some future
time during the lease term, depending
on whether some specified event
occurs.
Contingent rentals are not included in the
minimum lease payments. However,
they are disclosed in the notes to the
financial statements.

15 - 38
 Lease Disclosures
Lease disclosure requirements are quite
extensive for both the lessor and lessee. Virtually
all aspects of the lease agreement must be
disclosed. For all leases (a) a general description
of the leasing arrangement is required as well as
(b) minimum future payments, in the aggregate
and for each of the five succeeding fiscal years.

15 - 39
 Lease Disclosures
The lessor must disclose its net investment in
the lease. This amount is the present value of the
gross investment in the lease, which is the total of
the minimum lease payments (plus any
unguaranteed residual value).

Other required disclosures are specific to the type

of lease and include: residual values, contingent
rentals, sublease rentals, and executory costs.

15 - 40
 Balance Sheet and
Income Statement
Lease
Lease transactions
transactions impact
impact several
several financial
financial ratios
ratios
1.
1. Debt
Debt to
to equity
equity ratio
ratio –– Lease
Lease liabilities
liabilities are
are
recorded.
recorded.
2.
2. Rate
Rate of
of return
return on
on assets
assets –– Lease
Lease assets
assets are
are
recorded.
recorded.
Whether
Whether leases
leases are
are capitalized
capitalized or
or treated
treated as
as an
an
operating
operating lease
lease affects
affects the
the income
income statement
statement and
and
balance
balance sheet.
sheet. The
The greater
greater impact
impact is
is on
on the
the
balance
balance sheet.
sheet.

15 - 41
 Special Leasing Arrangements
1.
1. Sale-Leaseback
Sale-Leaseback Arrangements
Arrangements –– the the owner
owner of of an
an asset
asset
sells
sells itit and
and immediately
immediately leases
leases itit back
back from
from the
the new
new
owner.
owner. Any Any gain
gain on
on the
the sale
sale of
of the
the asset
asset is
is deferred
deferred
and
and amortized.
amortized. A A real
real loss
loss on
on the
the sale
sale of
of the
the property
property is
is
recognized
recognized immediately.
immediately.
2.
2. Real
Real Estate
Estate Leases
Leases::
•• Leases
Leases of
of Land
Land Only
Only
•• Leases
Leases of
of Land
Land and
and Building
Building
•• Leases
Leases of
of Only
Only Part
Part of
of aa Building
Building
3.
3. Leveraged
Leveraged Leases
Leases –– aa third-party,
third-party, long-term
long-term creditor
creditor
provides
provides nonrecourse
nonrecourse financing
financing for
for aa lease
lease agreement
agreement
between
between aa lessor
lessor and
and lessee.
lessee. The
The lessor
lessor acquires
acquires title
title
to
to the
the asset
asset after
after borrowing
borrowing aa large
large part
part of
of the
the
investment.
investment.
15 - 42
End of Chapter 15