1. Leases and financial statements A lease is an agreement that allows one party to use another party's property, plant, or equipment. Leases have become an important source for financing fixed assets for businesses and consumers. In a lease agreement, the uses the leased assets, which are owned by the Lease agreements can take several forms depending on the needs of the lessee and lessor. Classify the types of leases described in the following table. Financial Lease Operating Lease Sale and Leaseback The lease is fully amortized, and the lessor receives payments equal to the price of the asset and an additional rate of return on the investment. O 0 This lease allows the lessee to use the asset but does not give the right to own the asset. Such contracts can be canceled before the agreement expires. O o The seller of the property, called the lessee, immediately receives the purchase price from 0 the lessor. Leasing is often referred to as off-balance-sheet financing because the assets and capital needed to acquire fixed assets do not always show up on the balance sheet. According to Financial Accounting Standards Board (FASB) Statement No. 13, which of the following statements is true about leases that must be capitalized? O The present value of all future lease payments should be reported as assets on the balance sheet. O Leased assets should be reported as fixed assets on the balance sheet. Different companies or individuals offer different terms for lease contracts. An example of one such lease contract follows. Hewlett-Packard (HP) offers a lease program for its laser printers and PCs. The lease provides a 36-month contract with a so down payment at $279 per month for the laser printer. The lease payments fully amortize the printer's cost, and the lease covers maintenance costs. It also contains a cancellation clause if the lessee decided to terminate the contract. Identify the type of lease described in the preceding example. O Synthetic lease O Combination lease