In this assignment, you need to review and provide answers to the questions related to Aigrette’s financial statements. Consider the following scenario: You’re feeling pretty good about Aigrette’s financial statements and stop by Mr. Morton’s office to let him know you’re caught up. “I’m glad you stopped by,” Mr. Morton says. “I’m thinking about offering leases to our customers. I know we lease some of our equipment, so why shouldn’t we provide that same option for the people who buy our cars? But I’m not sure how leases affect our financial statements. You’d better look into that for me, and let me know what you think.” You tell him you’ll check into it, and you head back to your office. In the file cabinet Ms. Koffler used, you find a file labeled “Equipment Leases.” You remember that the last loan Aigrette took out was at an interest rate of 8%. You are sure the company could get that same rate again if they needed a loan. Aigrette uses straight-line depreciation for all equipment. You make some notes as you look through the documents, and
here’s what you have when you are done: Yearly rental (paid at beginning of year) $10,500 $11,000 Lease term 12 years 10 years Estimated economic life 20 years 10 years Purchase option No $5,000 at end of lease Renewal option No No Fair market value at beginning of lease $100,000 $75,000 Cost of asset to lessor $100,000 Guaranteed residual value None $5,000 Unguaranteed residual value None None Executory costs None None Paid by Panache $1,000 per year None Paid by lessor (maintenance) None $1,000 per year (est.) Implicit rate of lessor Not known 8% Estimated fair market value at end of lease $10,000 $5,000 Date lease was entered into January 1, 2011 January 1, 2012 Next, you do some research into the types of leases Aigrette could offer to its customers. Finally, you are ready to write a memo to Mr. Morton about Aigrette’s leases. Based on your analysis of the information provided, create a memo for Mr. Morton in 3- to 4-page Microsoft Word document that includes the following: Support your responses with examples. Cite any sources in APA format.