October 30, 2016 admin

Investment—Sales-Type Leases

Assets

INVESTMENT—SALES-TYPE LEASES ASSET ACCOUNT
1630

ACCOUNT EXPLANATION
Leases which “transfer substantially all of the benefits and risks incident to ownership of property should be accounted for as an acquisition of assets by the lessee and as sales by the lessor.” Such leases should be capitalized as assets and liabilities by the lessee (the customer) and recorded as sales-type leases by the lessor (the dealer).
TRANSACTIONS
  Jrnl. Dr. Cr.
  New Car leased under a sales-type lease NV
    Investment in Sales-Type Leases 1630
      Sales—All Fleet Cars 3350
      Deferred Income—Sales-Type Leases 1640
    Cost of Sales—New Cars—Fleet 4350
      Inventory—New Cars 1300
             
  Monthly billing made to Customer LR
    Accounts Receivable—Other 1130
      Investment in Sales-Type Leases 1630
      Sales Tax Payable     2150
      Leased Vehicle Income—Wholesale—Maintenance Lease (Maintenance Fee) Car     5301
COMMENTS
  • On the Ford Dealer Financial Statement, the balance of Account 1630 less Account 1640 should be combined and reported with Accounts 1610 and 1620, Leased Vehicles—Net, on line 28 of the balance sheet.
  • The accounting for a sales-type lease is fairly complex. In addition, there are important income tax considerations involved in recording this type of lease transaction. Accordingly, competent local accounting and tax advice should be obtained for matters pertaining to sales-type leases.
  • Subsidiary records should support the balance in this account.