| Course | ACC 620 Financial Reporting II |
|---|---|
| Module | Module 1 |
| Paper type | graduate discussion post on lease capitalization under ASC 842 |
| Length | About 350 words, 3 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 620 Module 1
Module One Discussion
Thirty-One Terminals and a Footnote
A refrigerated carrier I will use for this course leases 31 of its 38 terminals, mostly cross-docks near grocery distribution centers, on terms of eight to fifteen years. Under the old rules these were operating leases, and the only trace of them on the statements was a footnote table of future minimum payments, about $186 million undiscounted. Under ASC 842 the carrier recognized right-of-use assets and lease liabilities of about $142 million, the present value of those payments at its incremental borrowing rate (Financial Accounting Standards Board, 2016).
The FASB's reasoning was that a lease obligating a company to pay rent for 12 years is a liability whether or not the lease passes a bright-line test. The old rules let companies structure leases to fall just below 75 percent of an asset's life or 90 percent of its fair value and keep them off the balance sheet. Kieso et al. (2019) describe this as one of the most criticized areas of the old GAAP, because two carriers with identical terminals could report very different debt levels depending on whether they leased or borrowed to buy.
For the carrier, adoption raised total liabilities by about a quarter and its liabilities-to-equity ratio from 1.1 to 1.4. The income statement barely moved, because the FASB kept a dual model: operating leases still produce a single straight-line lease cost in operating expense. That choice, unlike IFRS 16, means EBITDA and operating income are almost unchanged, which matters because the carrier's revolving credit agreement measures debt to EBITDA. The covenant also defines debt to exclude operating lease liabilities, so the change did not cause a breach.
Did investors learn anything? Altamuro et al. (2014) studied how lenders and rating agencies treated operating lease commitments before capitalization, and their work suggests sophisticated users were already adjusting. The bigger gain may be for less sophisticated users and for comparability across carriers that lease and those that own.
For classmates: which group of users do you think gained the most from ASC 842, given that lenders and analysts were already adding leases back, and why?
References
Altamuro, J., Johnston, R., Pandit, S., & Zhang, H. (2014). Operating leases and credit assessments. Contemporary Accounting Research, 31(2), 551-580. https://doi.org/10.1111/1911-3846.12033
Financial Accounting Standards Board. (2016). Leases (Topic 842) (Accounting Standards Update No. 2016-02). Author.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 620 Module 1 instructions ask for
The first ACC 620 discussion usually asks why the FASB replaced the old lease standard with ASC 842 and how the change affects financial statements and analysis. Plan on three or four paragraphs supported by the update, the textbook and a company example, then replies. Strong posts explain the problem with the old bright-line tests, describe what changed for lessees and what stayed the same, and quantify the effect on at least one real or illustrative balance sheet. Many prompts also ask about debt covenants, the difference between finance and operating lease expense patterns or how analysts adjusted for leases before the change. A short comparison with IFRS 16 is often welcome.
How this ACC 620 Module 1 discussion example is built
The post uses a refrigerated carrier that leases 31 terminals under operating leases. Before ASC 842, those commitments, about $142 million in present value, appeared only in a note. After adoption the carrier records right-of-use assets and lease liabilities of that amount, raising total liabilities by about a quarter and its liabilities-to-equity ratio from 1.1 to 1.4. Because operating leases still produce a single straight-line cost in operating expense, earnings barely change. The post explains why the FASB kept the dual model, notes that lenders had already adjusted for leases, citing Altamuro and colleagues, and asks classmates which users gain the most from the new presentation.
Where the ACC 620 Module 1 rubric puts the points
Scoring for the lease discussion typically weighs accuracy on the old and new standards, the quality of the example, analysis of effects on ratios and covenants, sources and replies. The strongest posts quantify the balance sheet change, explain why the income statement changes little for operating leases and connect the update to the information needs of users. Posts that describe ASC 842 in general terms without an example, or that claim lease expense disappeared, score lower. Replies that test a classmate's ratio effects or ask how a covenant was written earn more participation credit than general agreement. Codification references, Topic 842 and its Subtopics, add precision, and a figure for the liability added shows the writer has worked the example.
ACC 620 Module 1 help: the mistakes that cost points
Students sometimes write that operating leases are now accounted for like finance leases, when the two still produce different expense patterns and cash flow classifications. Others overlook that covenant definitions often exclude operating lease liabilities from debt, so ratios in a loan agreement may not change. If your prompt asks about IFRS 16 instead, the comparison is useful: IFRS has a single lessee model, so all leases produce front-loaded expense there. Put one number in your first paragraph, the size of the liability your example adds; it gives the discussion a scale and gives classmates a figure to question. Then show the ratio before and after.
Get ACC 620 Module 1 written to your instructions
Send the ACC 620 Module 1 prompt and any company you want to use. The post will explain the reasons behind the standard, show its effect on that company's statements and ratios and end with something for classmates to answer. Your first sample is free and generally arrives in two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 620 Module 1 questions, answered
Where can I find a free ACC 620 Module 1 Discussion sample?
This page includes the full ACC 620 Module 1 post on why ASC 842 moved operating leases onto the balance sheet, using a trucking carrier.
What changed for lessees under ASC 842?
Lessees now book both an obligation and a matching asset for the right to use the property on nearly every lease longer than 12 months, including operating leases that were previously off the balance sheet.
Do operating and finance leases still differ under ASC 842?
Yes. Operating leases produce a single straight-line lease cost in operating expense, while finance leases produce separate amortization and interest, with higher expense early in the term.
Why did the FASB change lease accounting?
Because operating lease commitments, a major source of financing for many companies, were left off the balance sheet, which reduced comparability and understated obligations.
How does ASC 842 differ from IFRS 16?
IFRS 16 uses a single lessee model treating all leases like finance leases, while ASC 842 keeps both finance and operating lease classifications.