Case Study Rationale for Leasing, and the Effect of Operating and Capital Leases The Hotel Opulent Corporation is a large multi-chain hotel company with hotels in over 40 locations. The company owns all locations: none are franchised. This prosperous company owes part of its success to the excellence of its furnishings and equipment, which are replaced with quality items at regular intervals so that the hotel's guests never suffer old or worn-out furnishings. The new chief executive the Hotel Opulent Corporation has reviewed a listing of various assets that include date of purchase and the auditor's opinion of quality. A meeting of corporate executives is planned. Hotel management, sales, and financial personnel will attend. The financial VP will conduct the meeting in an advisory capacity. The Hotel Opulent has never leased any furnishings, vehi- cles, or equipment. The assets due for replacement are guestroom televisions sets, lobby furni- ture, and limousines at all 40 locations, consisting of hotels with room occupancy of 200 to 500 rooms. Each hotel has three to six limousines to provide a high level of customer service The financial VP is preparing a presentation on purchasing versus leasing. The presentation will educate the meeting participants so that they can decide in the best interests of operational quality, customer service, and financial reporting to stockholders. Challenge 1. In one sentence, define a lease. 2. In one sentence, identify and define the parties to a lease. 3. Explain the basic difference between an operating lease and a capital lease. 4. Explain the accounting treatment of an operating lease and a capital lease, and explain the effect each lease has on the financial statements. 5. Explain the economic rationale (operational and financial) for an operating lease instead of an asset purchase. 6. Identify what an operating lease conceals on the balance sheet