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Advantages of Leasing over Buying: Why Lease?

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What are the motivations for leasing? List reasons why a company might prefer to lease rather than buy including business reasons and the effects to the financial statements for alternative options.

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Solution Summary

The solution suggests four reasons why a company might prefer to lease rather than buy. For each of the four reasons, an explanation is provided which includes situations where leasing is appropriate plus the effects to the financial statements.

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Companies enter into lease transactions for several reasons, most of which are economic. Some of the reasons include:

1. To finance the use of an asset.

2. To acquire the use of an asset for a relatively short period of time without having to buy and sell the asset.

3. To acquire the use of an asset for an extended period of time, but keep the asset and related liability off the balance sheet.

4. To maintain a flexible operating profile so as to substitute ...

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