Total lease rental and direct financing and sales-type lease
revenues were $201.1 million
In a sales-type lease
transaction, lessors derecognize the leased asset and recognize their net investment in the lease.
The first quarter results included total lease rental and finance and sales-type lease
revenues of USD 186.9 million, a decrease of 4.0%, versus USD 194.7 million in the first quarter of 2017.
GAAP, the lease could be treated as a sales-type lease
or direct financing lease for HF.
The second quarter results included total lease rental and finance and sales-type lease
revenues of USD 195.0 million, an increase of 8%, as compared to USD 180.3 million in the second quarter of 2016.
Unrelated to the internal review, the revised financial statements also corrected for an accounting error, primarily for understated interest income, related to a sales-type lease
transaction within the Electronic Systems segment and previously identified immaterial errors already recognized in the financial statements but not recorded in the appropriate periods.
Example 2: At the beginning of the second year in a 10-year sales-type lease
, Real Company sells for $5,050 a nine-tenths interest in the minimum lease payments and retains a one-tenth interest in the minimum lease payments and a 100% interest in the unguaranteed residual value of leased equipment.
If any of the five criteria [briefly, 1) ownership is transferred at the end of the lease term; 2) a bargain purchase option for the leased asset exists; 3) the lease term does not commence near the end of, and is primarily for the remaining economic life of, the leased asset; 4) the present value of the lease payments and residual value guarantees is greater than or equal to substantially all of the fair value of the leased asset; or 5) the leased asset has no alternative use to the lessor at the end of the lease term] is met, the lease is evaluated as a sales-type lease
Unrelated to the internal review, the financial statement revisions also corrected the accounting for a sales-type lease
transaction in the Electronic Systems segment that began in 2004 and ends in 2023 for flight simulators, which increased pre-tax income by USD28 million, primarily for interest income, for periods prior to 2014.
For a sales-type lease
, the selling price is more than the cost of the asset and a sale is recognized by the lessor at the inception of the lease.
For the lessor, it was deemed either a sales-type lease
or a direct financing lease, to be reflected on the balance sheet as a lease receivable.
If so, in a sales-type lease
, the lessor reports such profit as income at the inception of the lease, offset by commissions or other selling costs.