Presented below is the condensed balance sheet for Express, Inc. as of December 31, 2011.

Express has decided that it needs to purchase a new crane for its operations. The new crane costs $900,000 and has a useful life of 15 years. However, Express€™s bank has refused to provide any help in financing the purchase of the new equipment, even though Express is willing to pay an above-market interest rate for the financing.
The chief financial officer for Express, Lisa Colder, has discussed with the manufacturer of the crane the possibility of a lease agreement. After some negotiation, the crane manufacturer agrees to lease the crane to Express under the following terms: length of the lease 7 years; payments $100,000 per year. The present value of the lease payments is $548,732.
The board of directors at Express is delighted with this new lease. They reason they have the use of the crane for the next 7 years. In addition, Lisa Colder notes that this type of financing is a good deal because it will keep debt off the balance sheet.
Instructions
With the class divided into groups, answer the following.
(a) Why do you think the bank decided not to lend money to Express, Inc.?
(b) How should this lease transaction be reported in the financial statements?
(c) What did Lisa Colder mean when she said €œleasing will keep debt off the balancesheet€?

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EXPRESS, INC. Balance Sheet December 31, 2011 $1,200,000 700,000 400,000 100,000 $2,400,000 Current assets S 800,000 Crrent liabilities Plant assets 1,600,000 Long-term liabilities Common stock Retained earnin 2S Total S2,400,000 Total