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Accounting: Leases, pensions, equity, multiple entities

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Answer each question with references; references have to be work citied within the paragraphs.

1. Assess the current accounting practices regarding leases and make a recommendation for improvement.

2. Assess the current accounting practices regarding pensions and make a recommendation for improvement.

3. Assess the current accounting practices regarding equity and make a recommendation for improvement.

4. Assess the current accounting practices regarding accounting for muliple entities and make a recommendation for improvement.

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Solution Summary

The following posting helps with problems involving accounting practices. Concepts discussed include leases, pensions, equity and accounting.

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Accounting practices regarding leases:

According to Lease Accounting Rules (2007), some leases are rentals and others are purchases since the asset might be nearly worthless at the end of the lease. Accounting standards regarding leases include the fact that operating leases are not included in the balance and affect the income statement in the form of rent expense. Fornaro and Buttermilch (2006) provide that rent expense under operating leases that have a rent free period or contained scheduled increases should be accounted for on straight-line basis over the period of the lease. The cash flow is affected since purchases of leasehold improvements are recognized with investing and operating activities (Fornaro and Buttermilch, 2006). Leasehold improvements are normally recognized by the lessor and the lessee as assets. Lease Accounting provides that gains or losses that result from fair value fluctuation are placed on the lessee.

Fornaro and Buttermilch (2006) provide that the accounting for lease is controversial since it is difficult to interpret the rules. Principle-based accounting can be an effective method for improving lease accounting since it increases comparability. Rebecca & Myring (2004) provide recommendations on how to improve accounting for leases and this includes reducing exceptions since it would reduce the complexity of standards and provide a clear picture of an entity's economic events. Cledon (2000) proposes that the distinction between operating and finance lease should be eliminated so as to avoid ambiguity in classification.

Accounting practices regarding pensions:

Apostolou & Crumbley (2006) provide current standards in accounting for pension and this includes the fact that pension cost has to be determined and ...

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