Sales lease-back transactions are a way for companies to obtain cash from assets without giving up the use of the assets. For example, an airline may own a airplane. It will arrange for the sale of the airplane to a financial institution. The financial institution takes title to the airplane, and then leases it back to the airline. So the plane never leaves its hangar, but continues in use at the airline as it always is being used. Only the title to the airplane changes. Most often, the lease created in the sales-leaseback transaction is classified as an operating lease, although it is possible to have capital leases involved in sale-leaseback transactions as well. Thus, sale-leasebacks bring cash into a company that is reported on the Statement of Cash Flows. However, different airlines report cash inflows from sale-leasebacks in different places. Some report it in Cash Flows from Investing, and some in Cash Flows from Financing. See the 2012 annual reports of American Airlines (Parent Company: AMR) and US Airways (Parent Company: US Airways Group) for examples of this diversity in classification.
You must provide support for your recommendation using the Codification and/or Conceptual Framework. Your reporting should use the following outline:
I. Problem Summary and Solution Recommendation
II. Issues Identified
III. Sources Used
IV. Discussion of Support