Presented below is the condensed balance sheet for Rossiter, Inc. as of December 31, 2014.

Rossiter 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, Rossiter€™s bank has refused to provide any help in financing the purchase of the new equipment, even though Rossiter is willing to pay an above-market interest rate for the financing.
The chief financial officer for Rossiter, Claire Wege, 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 Rossiter 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 Rossiter is delighted with this new lease. They have the use of the crane for the next 7 years, and this type of financing 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 Rossiter, Inc.?
(b) How should this lease transaction be reported in the financial statements?
(c) What did Claire Wege mean when she said €œleasing will keep debt off the balancesheet€?

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Rossiter, Inc Balance Sheet December 31, 2014 Current assets 800,000 Plant assets Current liabilities $1,200,000 700,000 400,000 100,000 Long-term liabilitics Common stock 1,600,000 Retained carnings $2400,000 Tta Total