Write a two- to three-page, double-spaced memo to Mr. Morton. Include in your memo:

An assessment of the assembly equipment and welding equipment leases that includes what type of lease each is. Embed the journal entries, in Excel format, that would have been made at the inception of each lease and the journal entries that will be made for 2010.

An evaluation of the types of leases that Aigrette could offer its customers and the effect of each type of lease on Aigrette’s financial statements. Indicate which type of lease you would recommend for Aigrette, why you chose it, and the terms the leases would need to include to qualify as that type of lease.

Using proper APA format, support your answers with appropriate scholarly research and evaluation. Create the required journal entries in an Excel spreadsheet and include a link to this in your document. Use the spreadsheet to present your analysis as well.

You’re feeling pretty good about Panache’s financial statements and stop by Mr. Cartwright’s office to let him know you’re caught up.

“I’m glad you stopped by,” Mr. Cartwright 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. Brown used, you find a file labeled “Equipment Leases.”

You remember that the last loan Panache took out was at an interest rate of 8%. You’re sure the company could get that same rate again if they needed a loan. Panache 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:

Assembly Equipment

Welding Equipment

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

1-Jan-10

1-Jan-11

Next, you do some research into the types of leases Panache could offer to its customers. Finally, you are ready to write a memo to Mr. Cartwright about Panache’s leases