Laurie Gocker, Inc., entered into a lease arrangement with Nathan Morgan Leasing Corporation for an industrial machine.

Question:

Laurie Gocker, Inc., entered into a lease arrangement with Nathan Morgan Leasing for an industrial machine. Morgan’s primary business is leasing. The cash purchase price of the machine is $1,000,000. Its economic life is six years.
Gocker’s reflects total assets of $10 million and total liabilities of $7.5 million.
Among the liabilities is a $2.5 million long-term note outstanding at Last National Bank.
The note carries a restrictive covenant that requires the company’s debt ratio to be no higher than 75%. The company’s revenues have been falling of late and the shareholders are concerned about profitability.
Gocker and Morgan are engaging in negotiations for terms of the lease. Some relevant other facts:
1. Morgan wants to take possession of the machine at the end of the initial lease term.
2. The term may run from four to five years, at Gockers discretion.
3. Morgan estimates the machine will have no residual value, and Gocker will not purchase it at the end of the lease term.
4. The present value of minimum lease payments on the machine is $890,000.

Requirements
1. What is (are) the ethical issue(s) in this case?
2. Who are the ? Analyze the consequences for each stakeholder from the following standpoints:
(a) Economic
(b) Legal
(c) Ethical.
3. How should Gocker structure the lease agreement?
4. How will the analysis of this case change when IFRS are adopted in the United States? Would your decision be different? Why or why not?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...