1. 1. FROM THE LESSEES POINT OF VIEW, THE TWO POSSIBLE WAYS TO RECORD A LEASE ARE OPERATING LEASE AND FINANCE LEASE.

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2. 2. BOTH RENT EXPENSE AND INTEREST EXPENSE ARE RECORDED BY A LESSEE UNDER A FINANCE LEASE.

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3. 3. HISTORICALLY, FINANCE LEASES WERE AN EXAMPLE OF OFF-BALANCE SHEET FINANCING.

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4. 4. OFF-BALANCE SHEET FINANCING MEANS THAT A COMPANY HAS LARGER OBLIGATIONS THAN IT SHOWS ON ITS BALANCE SHEET.

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5. 5. U.S. GAAP STATES THAT A LEASE WHICH TRANSFERS SUBSTANTIALLY ALL OF THE BENEFITS AND RISKS OF AN ASSET TO THE LESSEE SHOULD BE ACCOUNTED FOR AS AN OPERATING LEASE.

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6. 6. A BARGAIN PURCHASE OPTION GIVES THE LESSEE THE RIGHT TO BUY THE LEASED PROPERTY AT A DEEP DISCOUNT.

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7. 7. IF AN ASSET TRANSFERS OWNERSHIP TO THE LESSEE AT THE END OF THE LEASE TERM, THE LEASE SHOULD BE ACCOUNTED FOR AS AN OPERATING LEASE.

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8. 8. ONE OF THE CRITERIA FOR A FINANCE LEASE IS THAT THE LEASE TERM NEEDS TO BE A SUBSTANTIAL PORTION OF THE ASSETS USEFUL LIFE.

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9. 9.A FINANCE LEASE IS REPORTED JUST LIKE A PURCHASE.

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10. 10.LEASE PAYMENTS ARE ASSUMED TO CONTAIN INTEREST, IRRESPECTIVE OF WHETHER THE LEASE IS OPERATING OR FINANCE.

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Chapter 14

1. 1. INTEREST IS THE COST OF BORROWING MONEY.

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2. 2. COMPANIES WHICH ARE UNABLE TO PAY THEIR DEBTS CAN BE FORCED INTO BANKRUPTCY BY THEIR CREDITORS.

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3. 3. ALL BANKRUPTCIES END IN THE LIQUIDATION OF THE BANKRUPT COMPANY.

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4. 4. INTEREST IS A TAX-DEDUCTIBLE EXPENSE.

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5. 5. FINANCIAL LEVERAGE REFERS TO A COMPANYS ABILITY TO PAY OFF ITS DEBTS AS THEY COME DUE.

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6. 6. A COMPANY IS SAID TO BE EMPLOYING FINANCIAL LEVERAGE IF THE EXTRA INCOME GENERATED FROM BORROWED MONEY IS MORE THAN THE COST OF THE RELATED INTEREST.

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7. 7. A NOTE IS A WRITTEN CONTRACT THAT SPECIFIES THE PAYMENT OF DESIGNATED AMOUNTS OF CASH BY THE DEBTOR ON STATED DATE.

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8. 8. BONDS ARE TYPICALLY SOLD TO A GROUP OF PEOPLE, OFTEN THE GENERAL PUBLIC.

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9. 9. DEBT INSTRUMENTS ISSUED TO THE PUBLIC ARE SUBJECT TO THE REGULATION OF THE SEC.

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10. 10.MORTGAGE AGREEMENTS PROVIDE A LENDER WITH INTEREST IN IDENTIFIED PROPERTY ALLOWING THE LENDER TO REPOSSESS THE PROPERTY SHOULD THE BORROWER FAIL TO REPAY A LOAN.

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