In this assignment, you need to review and provide answers to the questions related to Panache's financial statements.

You're feeling pretty good about Panache's financial statements and stop by Mr. Cartwright's office to let him know you're caught up.

"I'm glad you stopped by," Mr. Cartwright says. "I'm thinking about offering leases to our customers. I know we lease some of our equipment, so why shouldn't we provide that same option for the people who buy our cars? But I'm not sure how leases affect our financial statements. You'd better look into that for me and let me know what you think."

You tell Cartwright you'll check into it, and you head back to your office. In the file cabinet Ms. Brown used, you find a file labeled "Equipment Leases."

You remember that the last loan Panache took out was at an interest rate of 8%. You're sure the company could get that same rate again if it needed a loan. Panache uses straight-line depreciation for all equipment.

You make some notes as you look through the documents, and here's what you have when you are done:

	Assembly Equipment	Welding Equipment
Yearly rental (paid at beginning of year)	$10,500	$11,000
Lease term	12 years	10 years
Estimated economic life	20 years	10 years
Purchase option	No	$5,000 at end of lease
Renewal option	No	No
Fair market value at beginning of lease	$100,000	$75,000
Cost of asset to lessor	$100,000
Guaranteed residual value	None	$5,000
Unguaranteed residual value	None	None
Executory costs	None	None
Paid by Panache	$1,000 per year	None
Paid by lessor (maintenance)	None	$1,000 per year (est.)
Implicit rate of lessor	Not known	8%
Estimated fair market value at end of lease	$10,000	$5,000
Date lease was entered into	January 1, 2015	January 1, 2016

Next, you do some research into the types of leases Panache could offer to its customers. Finally, you are ready to write a memo to Mr. Cartwright about Panache's leases.

Write a memo to Mr. Cartwright. Include in your memo the following:

• An assessment of the assembly equipment and welding equipment leases that includes what type of lease each is. Embed the journal entries, in Excel format, that would have been made at the inception of each lease and the journal entries that will be made for 2015.
• An evaluation of the types of leases that Panache could offer its customers and the effect of each type of lease on Panache's financial statements. Indicate which type of lease you would recommend for Panache, why you chose it, and the terms the leases would need to include to qualify as that type of lease.