Solved: Lease agreement with long leasing, Finance Basics

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Lease agreement with long leasing

Problem:

Snappy Corporation enters into a lease agreement with Long Leasing. Long requires that the lease qualify as a sale. Snappy can fill this requirement by either guaranteeing the residual value itself or having a third party guarantee the residual value. Self-guarantee of the residual value will result in a capital lease to Snappy. The third-party guarantee will allow Snappy to report the lease as an operating lease (off-balance sheet financing).

Argue for recording the lease as a capital lease.

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Finance Basics: Lease agreement with long leasing

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