San Diego State University Chapter 15 SDI Reporting Objective Questions Business Finance Assignment Help. San Diego State University Chapter 15 SDI Reporting Objective Questions Business Finance Assignment Help.
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Chapter 15 discussion
After reading Chapter 15, post your answers to the following questions pertaining to IFRS Case 15-6 in the Chapter 15 discussion forum. Be sure to support and explain your answers.
QUESTIONS:
1. Which lease classification would management prefer? Explain.
2. Would meeting SDI’s reporting objective be more or less difficult under IFRS? Explain.
3. Does SDI’s reporting objective pose an ethical dilemma? Why?
4. Who may be affected by SDI’s reporting objective? Why?
lectuer chapter 15
If you’ve ever leased an apartment, you know that a lease is a contract, pursuant to which a lessor (the owner) provides a lessee (the tenant) the right to use an asset for a specified period of time. In return for this right, the lessee agrees to make stipulated, periodic cash payments during the term of the lease. An apartment lease is a typical rental agreement in which the fundamental rights and responsibilities of ownership are retained by the lessor, and the lessee merely uses the asset temporarily. Businesses also lease assets under similar arrangements. These are referred to as operating leases. However, many contracts are formulated outwardly as leases, but in reality are installment purchases and sales. These are called finance leases by the lessee and sales-type leases by the lessor.
When the term of a lease begins, the lessee records a “right-of-use” asset along with a lease liability. Subsequent accounting treatment depends on the classification of the lease as either (a) an operating lease or (b) a finance lease. Leasing has grown to be the most popular method of external financing of corporate assets in the U.S. Because the lessor usually takes on at least some of the financial burdens and risks that a purchaser normally would assume, leasing usually is more expensive than buying.
Lease decisions are motivated by operational incentives, as well as tax and market considerations. Sometimes leasing offers tax savings over outright purchases. For example, a company with little or no taxable income will get little benefit from depreciation deductions for an owned asset. However, the company can benefit indirectly by leasing assets, rather than buying them. By allowing the lessor to retain ownership and thus benefit from depreciation deductions, the lessee often can negotiate lower lease payments. Lessees with sufficient taxable income to take advantage of the depreciation deductions, but still in lower tax brackets than lessors, can also realize similar indirect tax benefits.
Before recent lease accounting guidance, another reason to lease rather than buy was to obtain “off-balance-sheet financing.” When funds are borrowed to purchase an asset, the liability has a detrimental effect on the company’s debt-to-equity ratio and other quantifiable indicators of financial risk. Similarly, purchased assets increase total assets and correspondingly lower calculations of the rate of return on assets. To avoid looking more risky and less profitable, managers previously were able to keep assets and liabilities “off balance sheet” by leasing them, rather than buying them. That way, managers could avoid surpassing contractual limits on designated financial ratios (e.g., debt-to-equity ratio). Also, some managers might have thought they were fooling the financial markets into thinking their strategies were less risky and more profitable than actually was the case. However, U.S. GAAP now requires lessees to record assets and liabilities for all but very short term leases. In fact, the primary motivation for the new guidance was to curtail off-balance-sheet financing. Still, even without the incentive of off-balance-sheet financing, when the operational, tax, and financial advantages are considered, the net cost of leasing is often less than the cost of purchasing, so leasing arrangements remain very popular.
A lease is accounted for in one of two ways. It is viewed as either (a) a finance/sales-type lease (a purchase and sale accompanied by debt financing), or (b) an operating lease (a true rental). The choice of accounting method depends on the nature of the leasing contract.
Professional judgment is needed to differentiate between leases that are, in essence, installment purchases and sales and those that are not. From an accounting perspective, legal ownership is irrelevant in this decision. A finance lease is not the same thing as the purchase of an asset. The rights a lease grants a lessee under any lease, whether classified as a finance lease or an operating lease, are different from the rights transferred in the outright purchase and sale of an asset. For example, the lessee can’t sell the leased asset.
Nevertheless, a finance lease is economically similar to a purchase of the asset because (a) the terms of a finance lease normally allow the lessee to direct the use of the asset in a way that the lessee receives substantially all of the remaining benefits from the asset, and (b) it creates obligations for the lessee that are similar to those that financing the purchase of an asset would impose. The essential question is whether the lease is economically similar to the purchase of an asset because the lessee obtains control of the underlying asset (i.e., the lessee has the ability to direct the use of the asset and to obtain substantially all of its remaining benefits). This is in contrast to merely controlling the use of the asset for a certain period of time.
The desire to encourage consistency in practice motivated the FASB to provide guidance for distinguishing between the two fundamental types of leases because determining lease classification based on judgment alone is likely to lead to inconsistencies in practice. Some leases clearly fit the classifications we give them. However, others fall in a gray area somewhere between the two extremes, in which case we classify according to the best evidence available.
Because the objective is to determine whether the lessor has, in substance, sold the asset to the lessee, the first criterion is self-evident. Ownership attributes are obviously transferred if legal title passes to the lessee during, or at the end of, the lease term.
A purchase option is a provision in the lease contract that gives the lessee the option of purchasing the leased property at a specified exercise price. This criterion is met if the exercise price is sufficiently lower than the expected fair value the leased property when the option becomes exercisable.
The third criterion considers whether the asset is leased for the “major part” of its useful life. If so, then most of the risks and rewards of ownership are transferred to the lessee. A reasonable approach to assessing this criterion would be to conclude that 75 percent or more of the remaining economic life of the underlying asset constitutes a major part of the remaining economic life of that underlying asset. However, this is only one approach and not a precise indication.
The fourth criterion indicates that, if the lease payments required by a lease contract substantially pay for the leased asset, it’s logical to classify the contract as equivalent to a sale. A reasonable approach to assessing this criterion would be to conclude that 90 percent or more of the fair value of the underlying asset amounts to “substantially all” its fair value. In general, lease payments for the purpose of classifying a lease are payments the lessee is required to make in connection with the lease.
An amortization schedule shows how the lease balance and the effective interest change over the lease term, using the effective interest rate. Each lease payment after the first one includes both (a) an amount that represents interest and (b) an amount that represents a reduction of the outstanding balance. At the end of the lease term, the periodic reduction is sufficient for the outstanding balance to be zero. The schedule is used to track the changing amounts. Both the lessee and lessor use this same amortization schedule. The lessee amortizes its lease payable and records interest expense. Similarly, the lessor amortizes its lease receivable and records interest revenue, reflecting the opposite side of the same transaction.
Normally, the lessee should amortize a leased asset over the term of the lease. However, if (a) ownership transfers or (b) exercise of a purchase option is reasonably certain (i.e., either of the first two classification criteria is met), the asset should be amortized over its useful life. Meeting either of those first two criteria means the lessee will have the asset beyond the lease term, and thus the asset is amortized over the useful life of the asset to the lessee, whether or not that useful life is limited by the term of the lease.
Selling profit for the lessor exists when the fair value of the asset (e.g., the present value of the lease payments or “selling price”) exceeds the cost or carrying value of the asset sold. In addition to interest revenue earned over the lease term, the lessor recognizes a selling profit on the “sale” of the asset. Like the sale of any product, gross profit is the difference between sales revenue and cost of goods sold. The accounting is the same as for a sales-type lease without a selling profit, except that profit is recognized at the beginning.
When there is a selling profit, all lessor entries, other than the entry at the beginning of the lease to include the selling profit, are precisely the same as the entries for a sales-type lease without a selling profit. On the other side of the transaction, accounting by the lessee is not affected by whether the lessor recognizes a profit or not.
Recognizing the similarity between recording both the revenue and cost components of this “sale by lease” and recording the same components of other sales transactions, when a company sells a product on account, two entries are recorded: (a) one to record the receivable and sales revenue and (b) another to record the cost of goods sold and corresponding reduction in inventory. Economically, leases are just one of the arrangements that sellers can use to help customers buy their products. Sales-type leases must be separated from non-lease sales in the financial statements.
Although an operating lease liability is reported in the lessee’s balance sheet, it is designated as a “non-debt liability” in order to distinguish it from traditional liabilities, including finance lease liabilities. This separate classification is intended to prevent operating lease liabilities from causing companies to violate debt covenants, (e.g., restriction that the debt-to-equity ratio not exceed a certain limit). The lessor does not record a lease receivable. Instead, the lessor views an operating lease as simply renting the asset to the lessee and records rent revenue on a straight-line basis over the lease term.
How do we account for an operating lease? The lessee still records an asset and a liability at the beginning of the lease. The reason is that the lessee, although not having effectively purchased the asset via the lease agreement, still has acquired the right to use the asset for part of the asset’s useful life. Just like a finance lease, the right to use the leased asset can be a significant benefit, even if for a shorter period of time, and the promise to make the lease payments can be a significant obligation. So, just like the case in which the asset was leased for its entire life, the lessee still recognizes (a) a right-of-use asset and (b) a lease liability.
Each year, the lessee records interest the normal way and then “plugs” the right-of-use asset amortization at whatever amount is needed for interest plus amortization to equal the straight-line lease payment. In a finance lease, we can think of lease expenses as reflecting (a) the right to use the asset (amortization) plus (b) the financing of that right (interest). The way the lessee does that is to (a) determine interest expense and then (b) determine amortization of the right-of-use asset as the amount needed to cause the total lease expense (interest plus amortization) to be an equal, straight-line amount over the lease term. In other words, the lessee records interest the normal way and then “plugs” the right-of-use asset amortization at whatever amount is needed for interest plus amortization to equal the straight-line lease payment.
On the other hand, in an operating lease, lease expense is recorded in a manner that is designed to mirror straight-line rental of the asset during the lease term.
The lessee records more expense and the lessor records more revenue early in the life of a finance lease. This “front loading” of lease expense and revenue occurs because interest is higher initially than it is in the later stages of a lease. Operating leases avoid this front loading. Therefore, lessees tend to prefer the operating lease classification because it defers expense recognition, making net income higher in the early years of the lease.
Leasing can allow a company to (a) conserve assets, (b) avoid some risks of owning assets, and (c) obtain favorable tax benefits. These advantages are desirable. Accounting guidelines are designed to limit the ability of firms to obscure the realities of their financial position through off-balance-sheet financing, thereby avoiding violating terms of contracts that limit the amount of debt a company can have. Disclosure requirements include reporting finance lease liabilities and operating lease liabilities separately.
Because lease payments occur in future periods, we must consider the time value of money when evaluating their present value. Thus, an important factor in lease calculations is the discount (interest) rate used in present value calculations. This rate is important because it influences virtually every amount reported by both the lessor and the lessee in connection with the lease.
One discount rate is implicit in the lease agreement. This is the effective interest rate of return that the lease payments provide the lessor under the lease. It is the desired rate of return the lessor has in mind when deciding the size of the lease payments. (Refer to our earlier calculations of the periodic lease payments.) If known by the lessee, this is the lessor’s rate implicit in the lease agreement.
However, frequently the lessee is unaware of the lessor’s implicit rate. This might happen if, for example, the leased asset has a relatively high residual value. If there’s a residual value (guaranteed or not), it is an ingredient in the lessor’s calculation of the lease payments. Sometimes it may be hard for the lessee to identify the residual value estimated by the lessor if the lessor chooses not to reveal it. However, as the lease term and risk of obsolescence increase, the residual value is typically less of a factor.
When the lessor’s implicit rate is not known, the lessee should use its own incremental borrowing rate. This is the rate the lessee would expect to pay a bank if funds were borrowed to buy the asset.
A short-term lease permits the lessee to choose not to record an asset and related liability associated with the lease at the beginning of the lease term. Instead, the lessee can simply record lease payments as rent expense over the lease term. This is also the same approach used by the lessor for lease revenue. A lease is considered short-term if it:
1. Has a lease term (including any options to renew or extend) of twelve months or less and
2. Does not contain a purchase option that (a) would extend the term beyond twelve months and (b) the lessee is reasonably certain to exercise.
Sometimes the actual term of a lease is not obvious. For example, a lease term may be specified as four years, but it can be renewed at the option of the lessee for two additional years. Another example is where either party has the option after three years to terminate the four-year lease. In such situations, we adjust the contractual lease term for any periods covered by options to extend or terminate the lease where there is a significant economic incentive to exercise the options. A company adjusts the lease term for an option only if it is “reasonably certain” that the lessee will exercise the option, after considering the relevant economic factors. In other words, we adjust the contractual lease term if the benefits of exercising an option are sufficiently high that we think it will be exercised.
Circumstances can change, which may require a reassessment of how long the lease term will be. Reassessment requires a “triggering event” where the lessee now has an economic incentive to exercise an option that extends or terminates the lease. When there is a change in the lease term, lessees are also required to reassess the classification of a lease. For example, the lease may have been classified initially as an operating lease, but with the increase in the lease term, it meets the criteria for a finance lease, rather than an operating lease.
Note: This discussion pertains to a lessee; a lessor is not permitted to reassess its initial determination of the lease term or discount rate.
Sometimes, lease payments are scheduled to increase (or decrease) at some future date during the lease term, depending on whether or not some specified event occurs. Usually the contingency is related to revenues, profitability, or asset usage above some designated level. A contingent payment provision is a way for lessees and lessors to share the risk associated with the asset’s productivity. Because the amounts of future lease payments are uncertain and often avoidable, we don’t consider them as part of the lease payments used to calculate the lessee’s lease liability and the lessor’s lease receivable. If and when lease payments increase, the change in the lease payments has no effect on balance sheet accounts and simply is reported as a separate lease expense (for the lessee) and lease revenue (for the lessor).
However, we include “fixed payments in disguise” as part of the lessee’s lease payments. For example, a retail store’s monthly lease payments will increase next year by the higher of $250 or 0.5% of monthly store revenue. In that case, we know that the lease payment will increase by at least $250, so those payments are deemed to be in-substance fixed payments and are included in the lease payments used in present value calculations.
Another exception to not including certain payments when initially recording the lease liability is where the amount of the lease payments depends on an index or a rate (e.g., the Consumer Price Index). Even though we know that lease payments will vary in the future, we use the initial lease payment amount, based on the current index, to discount to present value when determining the right-of-use asset lease liability and lease receivable. When lease payments do change in the future (e.g., when the index or rate change), we don’t re-measure the lease liability or leased asset at that time, but simply report the additional amount as a separate lease payment that produces expense (for the lessee) and revenue (for the lessor).
The lessee should adjust the right-of-use asset and lease liability for changes in the amount of the payments only if and when the lessee re-measures the lease liability for reasons other than a change in the index or rate. For example, this might happen due to a reassessment of the lease term (described above) or a modification of the lease (described below). In that case, the leased asset and lease liability are recalculated by determining the present value of future lease payments using (a) the new lease payments as adjusted for changes in in the index or rate and (b) the discount rate that applies as of the date of the reassessment.
Note: The lessor never reassesses its lease receivable for variable lease payments.
Sometimes the lessee and lessor will agree to modify the terms of a lease before the lease term ends. This creates two possibilities:
1. The modification might grant the lessee an additional right of use, which would mean terminating the original lease and accounting for the modified arrangement as a new lease, or
2. Rather than grant an additional right of use, the modification might (a) alter the lessee’s right to use the asset, which would mean adjusting, adding to, or deleting what has been recorded in order to conform to the new terms of the contract (e.g., a change in the lease term or lease payments) and (b) perhaps reclassifying the lease from one type to another.
For example, there is a four-year operating lease of equipment with a useful life of six years, and after two years, the lessee and lessor agree to extend the lease term by two years and to alter the amount of the lease payments. The additional two years were not originally an option. In this case, the modification alters the lessee’s right to use the equipment; it doesn’t grant the lessee an additional right to use another asset. In addition, the modified lease term of two additional years (six years total) is now for a “major part” of the asset’s economic life, so classification changes from an operating lease to a finance/sales-type lease.
The lessee-guaranteed residual value of leased property is an estimate of what its commercial value will be at the end of the lease term. Typically, we will have a residual value in an operating lease because the lease term usually ends before the lease asset’s value has been depleted. A residual value is less likely, but still may happen, when the lease qualifies as a sales-type lease, because the lease term is for most, if not all, of the asset’s life.
Sometimes a lease agreement includes a guarantee by the lessee that the lessor will recover a specified residual value when custody of the leased asset reverts back to the lessor at the end of the lease term. This both (a) reduces the lessor’s risk and (b) gives the lessee an incentive to exercise a higher degree of care in maintaining the leased asset in order to preserve its value. The lessee promises to return both (a) the leased asset and (b) any cash necessary to provide the lessor with a minimum combined value. A residual value affects several aspects of lease accounting, including: (a) the size of the periodic lease payments, (b) the classification of a lease, and (b) the amounts recorded by both the lessee and lessor.
However, if the lessor gets the leased asset back at the end of the lease and the leased asset has commercial value, this residual value (the value of the leased asset itself) will provide another source of recovery of the lessor’s investment. The present value of the residual value of a lease asset also is called a residual asset. It reduces the amount needed from periodic lessee payments for the lessor to generate its expected return.
The lessee doesn’t view the residual asset as its asset because the leased asset will revert to the lessor. However, from the lessor’s perspective, even if a residual value is not guaranteed, the lessor still expects to receive something. Therefore, the lessor will view the residual asset as contributing to the amount needed to recover its investment, causing the lessee’s lease payments to be lower than would otherwise be the case. As the expected residual value increases, the size of the lease payments decreases.
The total amount of lease receipts is collected is referred to as the lessor’s gross investment in the lease and is included in the lessor’s lease disclosure note. The present value of those same payments is referred to as the net investment in the lease and is the amount recorded as the lease receivable in the journal entry at the beginning of the lease. If there is a residual value, in the final year of the lease, the cash payment is received and the equipment is reinstated on the lessor’s books at its fair value, which we assume to be the amount predicted when the lease began.
When a sales-type lease that includes a residual value also has a selling profit, we need to take that into consideration when the lease is recorded initially. Recall that the lessor records both sales revenue and cost of goods sold to account for the selling profit. The sales revenue is the present value of only the periodic lease payments, not including the residual value. Sales revenue does not include the residual value because the revenue to be recovered from the lessee is lease payments only. The remainder of the lessor’s investment is to be recovered – not from payment by the lessee, but by selling, releasing, or otherwise obtaining value from the asset when it reverts back to the lessor. Think of it this way: The portion of the asset sold is the portion not represented by the residual value. Therefore, both the asset’s cost of goods sold and its selling price are reduced by the present value of the portion not sold.
Other than this reduction of lease payments, should a lessee be concerned with the residual value of the leased asset? Maybe; it depends on:
1. Whether the lessee has arranged to guarantee a specific value of the residual asset at the conclusion of the lease and
2. How that value compares to the prediction of its actual value.
As discussed earlier, a lease agreement sometimes includes a guarantee by the lessee that the lessor will recover a specified residual value when custody of the asset reverts back to the lessor at the end of the lease term. The lessee promises to return not only (a) the leased asset, but also (b) sufficient cash to provide the lessor with a minimum combined value. However, that doesn’t necessarily mean that the lessee will be required to make any cash payment. A cash payment would be expected as of the beginning of a lease only if the guaranteed amount exceeds the estimated residual value of the leased asset.
If a cash payment under a lessee-guaranteed residual value is predicted, the present value of that payment is added to the present value of the periodic lease payments that the lessee records as both (a) a right-of-use asset and (b) a lease liability. For example, if the leases asset’s value is less than the lessee-guaranteed residual value at the end of the term, the lessee will pay cash for the difference. Therefore, the lessee views any expected excess guaranteed residual value as an additional cash flow to be paid to the lessor (i.e., addition to lease payments), and the lessee would add the present value of the expected excess guaranteed residual to the present value of the periodic lease payments when recording the right-of-use asset and lease liability at the beginning of the lease.
Looking at it from the other side of the transaction, the lessor would also view the expected excess guaranteed residual value as an additional amount to be collected. In a sales-type lease, the lessor would include this guaranteed residual value in the lease receivable.
It makes little economic sense for a lessee to agree to guarantee an amount greater than the estimated residual value, virtually ensuring an additional cash payment at the conclusion of the lease. Therefore, situations in which the lessee-guaranteed residual value exceeds the estimate of the actual residual value are rare in practice. The requirement to account for it in this way, though, serves as a deterrent to lessees and lessors who might be inclined to manipulate reported numbers by reducing lease payments while creating an excess lessee-guaranteed residual value to compensate for the reduced lease payments.
We classify a lease as a finance/sales-type lease if, in substance, the lessor is selling the asset to the lessee. Recall that one of the classification criteria is a comparison of the fair value of an asset with the present value of the payments coming from the lessee. Payments from the lessee are the periodic lease payments plus any portion of the residual value the lessee has guaranteed. That’s the basis for classification criterion 4: If the present value of the lease payments, including any lessee-guaranteed residual value constitutes “substantially all” of the fair value of the asset, it’s a finance lease from the lessee’s perspective and a sales-type lease from the lessor’s perspective.
A purchase option is a provision in some lease contracts that gives the lessee the option to purchase the lease asset during, or at the end of, the lease term at a specified exercise price. If it is “reasonably certain” that the lessee will exercise the purchase option, the accounting for the lease is affected in three ways:
1. The lease is classified as a finance/sales-type lease,
2. Both the lessee and the lessor consider the exercise price of the option to be an additional cash payment, and
3. We assume the lease term ends on the date that the option is expected to be exercised.
Both the additional cash payment and the shortened lease term impact the calculation of the lessee’s right-of-use asset and lease liability and the lessor’s lease receivable. Also, because the lessee is predicted to own the asset after the lease term, the right-of-use asset recognized by the lessee should be amortized over the economic life of the asset, rather than over the lease term. In practice, where the exercise of a purchase option is reasonably certain, it is often referred to as a “bargain” purchase option (BPO) because the exercise price of the purchase option is a good deal (or a bargain) to the lessee, making it reasonably certain that the lessee will exercise the option. Therefore, the exercise price is a component of the lease payments for both the lessor and the lessee.
When we have a bargain purchase option, we ignore the residual value because the option is expected to be exercised. When it is exercised, title to the leased asset passes to the lessee and, with title, any residual value also passes. When that happens, the residual value cannot be considered an additional lease payment to the lessor.
Amortization of the leased asset is also affected by the BPO. As mentioned earlier, the lessee normally amortizes its right-of-use asset over the term of the lease, but if ownership transfers (a) by contract or (b) by the expected exercise of a purchase option, the lessee will have the asset beyond the lease term, and will amortize it over the longer useful life. This reflects the fact that the lessee anticipates using the leased equipment for its full useful life.
Sometimes the lease contract specifies that an option becomes exercisable before the designated lease term ends. If the option is reasonably certain to be exercised, the lease term ends for accounting purposes when the option becomes exercisable. Lease payments include only the periodic cash payments specified in the agreement that occur prior to the date a BPO becomes exercisable. We assume the option is exercised at that time and the lease ends.
Similar to a lease with a purchase option, if a lease contract includes a penalty payment if the lessee chooses to terminate the lease at a time specified in the contract, we consider the termination penalty to be an additional cash payment if the lessee is “reasonably certain” to terminate the lease. Again, if termination is predicted, we consider the lease term to be from the beginning of the lease to the expected termination date.
When considering the various uncertainties surrounding leases discussed above, we’ve encountered several situations that cause us to re-measure a lease liability (and right-of-use asset). In each case, we compare the re-measured liability with its current balance to see the adjustment needed, calculating the new amount as the present value of the remaining lease payments.
Service contracts, maintenance, hazard insurance, and property taxes are costs often associated with owning and operating an asset. Frequently, for convenience, a lease contract will specify that the lessor is to pay some or all of these costs, but in reality these additional costs are embedded in the periodic payments made by the lessee. Here is the accounting question:
1. Include these additional costs as separate components of the lease contract (to be expensed by the lessee) or
2. Include these additional costs as amounts to be capitalized as part of the right-of-use asset.
For example, if the non-lease component has a fixed payment for hazard insurance or property taxes, that payment does not transfer to the lessee a separate good or service. Instead, payments for hazard insurance and property taxes are specifically identified in the lease accounting guidance as part of the lease payments, rather than non-lease components. However, if the charge represents a transfer of a good or service to the lessee, it qualifies as a “non-lease component” of the payment and is separated from the lease payments.
Assuming for the sake of argument that a lessee were given the option to elect not to exclude non-lease components (e.g., maintenance) and the lessee could elect to treat the maintenance cost as part of the lease payment, if the amounts are material, the lessee likely would not elect this option because the effect is to increase the lease liability, something most lessees try to avoid.
Initial direct costs are costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred. Initial direct costs incurred by the lessee are added to the right-of-use asset. They include legal fees, commissions, and preparing and processing lease documents. While legal and processing fees for executing the lease document are included, legal fees for negotiations and drafting documents are not initial direct costs and are expensed as incurred.
However, in a sales-type lease that includes selling profit, initial direct costs are expensed in the period of “sale” – that is, at the beginning of the lease. This treatment assumes that in a sales-type lease the primary reason for incurring these costs is to facilitate the sale of the leased asset.
In a sales-type lease with no selling profit, initial direct costs are deferred and expensed over the lease term. This can be accomplished by not recording the “prepaid expense” separately, but by including it in the lease receivable. Increasing the receivable causes the implicit rate (the interest rate that causes the present value of the lease payments to equal the receivable) to be lower. Determining interest revenue at this lower rate accomplishes the purpose of reducing interest revenue each period by a portion of the prepaid expense.
In an operating lease, initial direct costs are deferred and expensed over the lease term, generally on a straight-line basis.
Often, lease agreements call for advance payments to be made at the beginning of the lease. Those payments represent prepaid rent (lease costs) and are included with other payments when the lessee determines the present value of lease payments to determine the right-of-use asset and lease liability and when the lessor calculates its lease receivable in a sales-type lease. However, because the lessor doesn’t record a lease receivable for an operating lease, in that case these advance payments are recorded as deferred rent revenue and allocated (normally on a straight-line basis) to rent revenue over the lease term. The rent that is periodically reported in those cases consists of the periodic rent payments themselves plus an allocated portion of deferred rent revenue.
Sometimes, a lessee will make improvements to leased property that reverts back to the lessor at the end of the lease. Like other assets, the cost of these improvements is allocated as amortization or depreciation expense over their useful life to the lessee, which will be the shorter of the lease term or the physical life of the asset. In practice, the traditional account title used is Leasehold Improvements. The existence of leasehold improvements can affect the determination of the lease term. For example, if the value of leasehold improvements can be realized only through continued occupancy of a leased building, at the beginning of the lease the lessee could determine that it is reasonably certain to exercise a renewal option because it would suffer a significant economic penalty if the leasehold improvements were abandoned at the end of the initial lease term.
Recall that finance leases are agreements that we identify as being formulated outwardly as leases, but which are in reality installment purchases, so we account for them as such. Each lease payment (except the first if paid at beginning) includes both (a) an amount that represents interest and (b) an amount that represents a reduction of principal. In a statement of cash flows, then, the lessee reports the interest portion as a cash outflow from operating activities and the principal portion as a cash outflow from financing activities.
At the beginning of the lease, the lessee reports the right-of-use asset and lease liability as a noncash investing/financing activity in the disclosure notes to the financial statements.
In a sales-type lease we assume the lessor is actually selling its product. Consistent with reporting sales of products under installment sales agreements, rather than lease agreements, the lessor reports cash receipts from a sales-type lease as cash inflows from operating activities. At the beginning of the lease, the lessor reports the lease as a noncash investing activity (acquiring one asset and disposing of another) in the disclosure notes to the financial statements.
Lease disclosure requirements are quite extensive for both the lessor and lessee, and virtually all aspects of the lease agreement must be disclosed.
In a sale-leaseback transaction, the owner of an asset sells it and immediately leases it back from the new owner. In a sale-leaseback transaction two things happen:
1. The seller-lessee receives cash from the sale of the asset.
2. The seller-lessee pays periodic rent payments to the buyer-lessor to retain the use of the asset.
The two most common reasons for this arrangement are:
1. If the asset was financed originally with debt and interest rates have fallen, the sale-leaseback transaction can be used to effectively refinance at a lower rate or
2. Generate cash (the most likely motivation).
We apply the sale-leaseback approach only if the usual requirements for revenue recognition are met (i.e., the sale can be recorded), and it’s not a finance lease, which would indicate the asset is effectively sold back to the lessee. We account for this type of arrangement in one of two ways:
1. Sale-Leaseback Approach – Record the sale of the asset (with any accompanying gain or loss) and then record a lease for the leaseback portion in accordance with the lease guidance described above. However, if the leaseback qualifies as a finance lease, no sale has occurred and this approach cannot be applied, which means the sale-leaseback approach is allowed only if the leaseback qualifies as an operating lease.
2. Financing Arrangement – View the arrangement, not as a sale, but as a loan by the lessor to the lessee for the “sale” price. The asset remains on the lessee’s books, and the leaseback is accounted for as debt. The “lease” payments are deemed to be repayment of the loan.
If the transaction does not qualify for sale-leaseback accounting, both the companies account for it as a financing arrangement. We allow sale-leaseback accounting only for situations in which the leaseback qualifies as an operating lease because a finance lease is substantively a “sale.” If this is the nature of a leaseback, then we have a sale by the lessee and then a sale back to the lessee, so we really have no sale at all. Essentially, the asset still belongs to the lessee, and cash comes to the lessee at the time of the transaction, which is repaid in the form of periodic “lease payments.” Of course, this is in substance a loan, so we account for it that way.
If none of the criteria for a finance lease is met, the leaseback is recorded by the lessee as an operating lease. The sale-leaseback, then, is deemed to be two distinct transactions:
1. A legitimate sale (creating a gain or loss) and
2. An operating lease, and the lessor would record the purchase of an asset and then record lease revenue each year over the term of the lease.
San Diego State University Chapter 15 SDI Reporting Objective Questions Business Finance Assignment Help[supanova_question]
ACT 500 Saudi Electronic University Mod 7 Budget Preparation Process Discussion Business Finance Assignment Help
Many textbooks praise the benefits of participative budgeting. Is it wise to involve multiple parties at multiple levels in the organization in the budget preparation process? Why or why not?
Embed course material concepts, principles, and theories (requires supporting citations) along with at least one scholarly, peer-reviewed reference in supporting your answer.
You are required to reply to at least two peer discussion question post answers to this weekly discussion question and/or your instructor’s response to your posting. These post replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that post answer. Normal course dialogue doesn’t fulfill these two peer replies but is expected throughout the course. Answering all course questions is also required.
Hello There,
How are you?
I need please, MAX 2 pages, MIN 1 Page ( More pages are optional)
At least 2 references.
Later on, I will ask you for 2 short replies.
I sent you 3 power points files, in fact I don not know which one is the proper one, so I send them all to check them out.
Thank you.
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ENG 124 Tennessee State University Analyzing the Rhetorical Tactics Essay Writing Assignment Help
the essay is about Analyzing the rhetorical tactics of a controversial site.
should be 800-1000 words , will be checked by turnitin.
please read the attached for notes of how to write the essay.
the purpose of this designed to help you understand how information is communicated to us. By looking at a website, you should be able to analyze the purpose of that website, who the target audience is, what their values and beliefs are, and so on. As you do you analysis, you should be looking at every aspect of the website including, but not limited to, the font (size, style, color), the presence of videos (or absence), additional links (and what their purposes are) and so on. Think of looking at this website like looking at an onion and peeling back the layers to see the whole.
*You must locate website you plan on analyzing. You are required to include a Works Cited page with your paper that has the entry for the website information on it. In addition, you must locate 2 recent news/opinion articles about the company and summarize them. Your works cited page should have 3 entries on it: the main website and the 2 news/opinion articles you are required to locate—no more, no less.
further resource will be provided
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Delta State University Week 7 Liberal Feminism Theory Discussion Humanities Assignment Help
**DISCUSSION WEEK 7
https://www.socialworkers.org/About/Ethics/Code-of…
Discussion – Week 7
Values Underlying Theory and the NASW Code of Ethics
Every profession has a code of ethics that guides professional behavior. In social work, the NASW Code of Ethics guides the behavior and decision-making practices of social workers. It is important that the theories social workers select in working with clients align, or are consistent, with the values and ethical principles identified in the NASW Code of Ethics.
In this Discussion, you align ethics and theory in relation to practice.
To prepare: Review the National Association of Social Workers Code of Ethics listed in the Learning Resources.
By Day 3
Post:
- Select feminist theory or empowerment theory. Summarize the underlying principles and values of the theory in 3 to 4 brief sentences.
- Analyze the extent to which the underlying principles and values of the theory are consistent with the NASW Code of Ethics in 3 to 4 brief sentences.
- Briefly describe a client from your fieldwork experience and their presenting problem in 2 to 3 sentences using the theory you selected.
- Identify one ethical standard from the NASW Code of Ethics that would apply to the client you described.
- Explain how the theory is consistent with the work you did with the client and the ethical standard.
**ASSIGNMENT WEEK 7
Tiffani Bradley
Identifying Data: Tiffani Bradley is a 16-year-old Caucasian female. She was raised in
a Christian family in Philadelphia, PA. She is of German descent. Tiffani’s family
consists of her father, Robert, 38 years old; her mother, Shondra, 33 years old, and
her sister, Diana, 13 years old. Tiffani currently resides in a group home, Teens First,
a brand new, court-mandated teen counseling program for adolescent victims of
sexual exploitation and human trafficking. Tiffani has been provided room and board
in the residential treatment facility for the past 3 months. Tiffani describes herself as
heterosexual.
Presenting Problem: Tiffani has a history of running away. She has been arrested on
three occasions for prostitution in the last 2 years. Tiffani has recently been court
ordered to reside in a group home with counseling. She has a continued desire to be
reunited with her pimp, Donald. After 3 months at Teens First, Tiffani said that she
had a strong desire to see her sister and her mother. She had not seen either of
them in over 2 years and missed them very much. Tiffani is confused about the path
to follow. She is not sure if she wants to return to her family and sibling or go back to
Donald.
Family Dynamics: Tiffani indicates that her family worked well together until 8 years
ago. She reports that around the age of 8, she remembered being awakened by
music and laughter in the early hours of the morning. When she went downstairs to
investigate, she saw her parents and her Uncle Nate passing a pipe back and forth
between them. She remembered asking them what they were doing and her mother
saying, “adult things” and putting her back in bed. Tiffani remembers this happening
on several occasions. Tiffani also recalls significant changes in the home’s
appearance. The home, which was never fancy, was always neat and tidy. During
this time, however, dust would gather around the house, dishes would pile up in the
sink, dirt would remain on the floor, and clothes would go for long periods of time
without being washed. Tiffani began cleaning her own clothes and making meals for
herself and her sister. Often there was not enough food to feed everyone, and Tiffani
and her sister would go to bed hungry. Tiffani believed she was responsible for
helping her mom so that her mom did not get so overwhelmed. She thought that if
she took care of the home and her sister, maybe that would help mom return to the
person she was before.
Sometimes Tiffani and her sister would come downstairs in the morning to find empty
beer cans and liquor bottles on the kitchen table along with a crack pipe. Her parents
would be in the bedroom, and Tiffani and her sister would leave the house and go to
school by themselves. The music and noise downstairs continued for the next 6
years, which escalated to screams and shouting and sounds of people fighting.
Tiffani remembers her mom one morning yelling at her dad to “get up and go to
work.” Tiffani and Diana saw their dad come out of the bedroom and slap their mom
so hard she was knocked down. Dad then went back into the bedroom. Tiffani
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remembers thinking that her mom was not doing what she was supposed to do in the
house, which is what probably angered her dad.
Shondra and Robert have been separated for a little over a year and have started
dating other people. Diana currently resides with her mother and Anthony, 31 years
old, who is her mother’s new boyfriend.
Educational History: Tiffani attends school at the group home, taking general
education classes for her general education development (GED) credential. Diana
attends Town Middle School and is in the 8th grade.
Employment History: Tiffani reports that her father was employed as a welding
apprentice and was waiting for the opportunity to join the union. Eight years ago, he
was laid off due to financial constraints at the company. He would pick up odd jobs
for the next 8 years but never had steady work after that. Her mother works as a
home health aide. Her work is part-time, and she has been unable to secure full-time
work.
Social History: Over the past 2 years, Tiffani has had limited contact with her family
members and has not been attending school. Tiffani did contact her sister Diana a
few times over the 2-year period and stated that she missed her very much. Tiffani
views Donald as her “husband” (although they were never married) and her only
friend. Previously, Donald sold Tiffani to a pimp, “John T.” Tiffani reports that she was
very upset Donald did this and that she wants to be reunited with him, missing him
very much. Tiffani indicates that she knows she can be a better “wife” to him. She
has tried to make contact with him by sending messages through other people, as
John T. did not allow her access to a phone. It appears that over the last 2 years,
Tiffani has had neither outside support nor interactions with anyone beyond Donald,
John T., and some other young women who were prostituting.
Mental Health History: On many occasions Tiffani recalls that when her mother was
not around, Uncle Nate would ask her to sit on his lap. Her father would sometimes
ask her to show them the dance that she had learned at school. When she danced,
her father and Nate would laugh and offer her pocket change. Sometimes, their
friend Jimmy joined them. One night, Tiffani was awakened by her uncle Nate and his
friend Jimmy. Her parents were apparently out, and they were the only adults in the
home. They asked her if she wanted to come downstairs and show them the new
dances she learned at school. Once downstairs Nate and Jimmy put some music on
and started to dance. They asked Tiffani to start dancing with them, which she did.
While they were dancing, Jimmy spilled some beer on her. Nate said she had to go to
the bathroom to clean up. Nate, Jimmy, and Tiffani all went to the bathroom. Nate
asked Tiffani to take her clothes off and get in the bath. Tiffani hesitated to do this,
but Nate insisted it was OK since he and Jimmy were family. Tiffani eventually
relented and began to wash up. Nate would tell her that she missed a spot and would
scrub the area with his hands. Incidents like this continued to occur with increasing
levels of molestation each time.
4
The last time it happened, when Tiffani was 14, she pretended to be willing to dance
for them, but when she got downstairs, she ran out the front door of the house. Tiffani
vividly remembers the fear she felt the nights Nate and Jimmy touched her, and she
was convinced they would have raped her if she stayed in the house.
About halfway down the block, a car stopped. The man introduced himself as Donald,
and he indicated that he would take care of her and keep her safe when these things
happened. He then offered to be her boyfriend and took Tiffani to his apartment.
Donald insisted Tiffani drink beer. When Tiffani was drunk, Donald began kissing her,
and they had sex. Tiffani was also afraid that if she did not have sex, Donald would
not let her stay— she had nowhere else to go. For the next 3 days, Donald brought
her food and beer and had sex with her several more times. Donald told Tiffani that
she was not allowed to do anything without his permission. This included watching
TV, going to the bathroom, taking a shower, and eating and drinking. A few weeks
later, Donald bought Tiffani a dress, explaining to her that she was going to “find a
date” and get men to pay her to have sex. When Tiffani said she did not want to do
that, Donald hit her several times. Donald explained that if she didn’t do it, he would
get her sister Diana and make her do it instead. Out of fear for her sister, Tiffani
relented and did what Donald told her to do. She thought at this point her only
purpose in life was to be a sex object, listen, and obey—and then she would be able
to keep the relationships and love she so desired.
Legal History: Tiffani has been arrested three times for prostitution. Right before the
most recent charge, a new state policy was enacted to protect youth 16 years and
younger from prosecution and jail time for prostitution. The Safe Harbor for Exploited
Children Act allows the state to define Tiffani as a sexually exploited youth, and
therefore the state will not imprison her for prostitution. She was mandated to
services at the Teens First agency, unlike her prior arrests when she had been sent
to detention.
Alcohol and Drug Use History: Tiffani’s parents were social drinkers until about 8
years ago. At that time Uncle Nate introduced them to crack cocaine. Tiffani reports
using alcohol when Donald wanted her to since she wanted to please him, and she
thought this was the way she would be a good “wife.” She denies any other drug use.
Medical History: During intake, it was noted that Tiffani had multiple bruises and burn
marks on her legs and arms. She reported that Donald had slapped her when he felt
she did not behave and that John T. burned her with cigarettes. She had realized that
she did some things that would make them mad, and she tried her hardest to keep
them pleased even though she did not want to be with John T. Tiffani has been
treated for several sexually transmitted infections (STIs) at local clinics and is
currently on an antibiotic for a kidney infection. Although she was given condoms by
Donald and John T. for her “dates,” there were several “Johns” who refused to use
them.
5
Strengths: Tiffani is resilient in learning how to survive the negative relationships she
has been involved with. She has as sense of protection for her sister and will sacrifice
herself to keep her sister safe.
Robert Bradley: father, 38 years old
Shondra Bradley: mother, 33 years old
Nate Bradley: uncle, 36 years old
Tiffani Bradley: daughter, 16 years old
Diana Bradley: daughter, 13 years old
Donald: Tiffani’s self-described husband and her former pimp
Anthony: Shondra’s live-in partner, 31 years old
John T.: Tiffani’s most recent pimp
Your video presentation should include the following:
- In 1 to 2 sentences, identify and describe the problem to be worked on in your chosen case study.
- In 1 to 2 sentences, explain how feminist theory you are utilizing defines and explains the cause of the problem.
- In 1 to 2 sentences, use feminist theory to describe the role of the social worker to facilitate change in the case study.
- In the assessment phase, identify 2 assessment questions you will ask to explore what the client’s goals are and how they will get there.
- Remember, feminist theory should be driving the assessment.
- Describe two interventions to address the problem and explain how the clients will implement the interventions.
- Remember, feminist theory should be driving the interventions.
- In 2 to 3 sentences, discuss how you would evaluate if one of the interventions you identified is effective with the client.
- Explain how, specifically, you will set the tone throughout your work with the client to reduce the hierarchical relationship and make it more collaborative.
- Evaluate one strength and one limitation of feminist theory in working with the client.
Be sure to:
- Identify and correctly reference the case study you have chosen.
- Speak clearly.
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SPC 1017 Miami Dade College 12 Angry Men Film Discussion Humanities Assignment Help
Watch the original 1957, black-and-white version of “12 Angry Men.” Watch for indications of the six
steps of the Group Problem-solving Process and leadership. Write a short (1 1/2 to 2 page, double
spaced) essay explaining in detail how the movie demonstrates each of the six steps of the group decision
making process. Keep in mind that everyone involved in the trial—the judge, prosecutor, defense
attorney and the individuals of the jury—are part of the decision making process since, and some of the
steps may have occurred in the courtroom. In addition, address the style and the effectiveness of the
characters who performed leadership roles.
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Strayer University Week 7 Best Practices in Interviewing Discussion Writing Assignment Help
Discussion 1: Best Practices in Interviewing
“Ordinary conversations are about sociability and maintaining a relationship, while interviews are more about making a relationship to help find an answer to a research question” (Rubin & Rubin, 2012, p. 99).
For this Discussion, you will view videos that
depict different interviewing techniques. You will then analyze and
evaluate the techniques used, and you will discuss how you will utilize
best practices when you conduct your own interviews.
To prepare for this Discussion:
- Review Chapter 12 of the Rubin and Rubin course text.
- Review the two media segments on interviewing. As you view the
videos, practice your observation skills by creating field notes for
yourself. Be careful to distinguish between observation and
interpretation as Dr. Crawford warns in the videos. - Consider the following questions for your post to evaluate the
techniques used in each interview. Which practices could you use in your
own interview? Which practices should you avoid? Where did the person
in the video go wrong? How could this issue have been avoided or
corrected?
By Day 3
Post a 2- to 3-paragraph evaluation of the
interview techniques used in both interviews. Include commentary and
analysis of best practices, practices to avoid, and how this viewing
experience will inform your approach to the interviewing assignment
introduced in this week’s Major Assignment.
When
appropriate, be sure to support your postings and responses with
specific references to the reading(s) and/or video program(s) and use
APA format.
Strayer University Week 7 Best Practices in Interviewing Discussion Writing Assignment Help[supanova_question]
Northern Virginia Community College PC Hardware Fundamentals Discussion Computer Science Assignment Help
Introduction to the PC
The computer consists of at least one processing element, a central processing unit (CPU), and some form of memory. This allows the processor to carry out mathematical and logic operations. While mechanical analog computer have been around since medieval times and were used extensively during WWII, the advent of the personal computer is still relatively new. To understand where computer technology is going, one must also understand where it has been.
Learn more about the history of the computer and types of computers.
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- Visit the Virtual Timeline of Computer History http://www.computerhistory.org/timeline/computers/
- Read Computer – Types http://www.tutorialspoint.com/computer_fundamentals/computer_types.htm
- Watch Is a Mac a PC?
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Investigate hardware components.
- First, review Computer – Components http://www.tutorialspoint.com/computer_fundamentals/computer_components.htm
- Then review Computer Hardware http://www.tutorialspoint.com/computer_fundamentals/computer_hardware.htm
- Input devices — keyboard, mouse etc.
- Output devices — printer, monitor etc.
- Secondary storage devices — Hard disk, CD, DVD etc.
- Internal components — CPU, motherboard, RAM etc.
- Watch Power Mac G5: Hardware
Investigate hard drives.
- Read Chapter 6: Supporting Hard Drives in the ebook CompTIA
- Hard Drive Technologies and Interface Standards
- How to Select and install
- Tape Drives and Floppy drives
Complete the review questions to check your understanding. If you do not get all questions right, go back to the chapter and review.
Your neighbor has asked you to set up a home computer system. He plans to use the system for Internet searching, correspondence through email and social media, and to play games. Occasionally, he will have to prepare documents or formal letters to send electronically. You will need to analyze the environment for the system and determine the requirements.
In order to determine what computer system your neighbor will need, you will need to determine which system and hardware will best meet his needs.
- Determine which computer hardware you will use and explain why.
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University of the Cumberlands Business Continuity and Emergency Plan Essay Business Finance Assignment Help
Pick an industry/company to focus on for this assignment. Based upon the given information you can find on the company and any past issues/breaches the company has gone through, create Crisis Management Plan
Document Format
- Title Page: Title/Name/School/Class/Professor/Date
- TOC-Generated by MS Word modified to APA 7 (see video)
- Introduction (not a Heading) – brief background of company and any issues the company has had in the past such as data breaches.
- Heading 1-Strategies and Management – business activities, risk factor activities, reactive risk mitigation strategy, risk management, financial performance (more or less depending upon company)
- H1-Risk Analysis – political analysis, environmental analysis (more or less depending upon company)
- H1-Crisis Management Plan:
- Heading 2-Purpose
- H2-Committee for crisis management planning
- H2-Crisis types
- H2-Structure of the Crisis Management Team
- H2-Responsibility and control
- H2-Implementation Plan
- H2-Crisis Management Protocols
- H2-Crisis Management Plan Priorities
- H1-Conclusion
- Reference page (Generated by MS Word)
- Divide the work on the plan amongst your group members.
APA 7 and other requirements:
- Font – Times New Roman size 12
- Double Spacing
- Headings follow APA
- Reference page follow APA
- Page Count Range should be 20 pages not including:
- Title page, Table of Contents and References page
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Strayer University Wk 7 What Makes a Good Interview Discussion Writing Assignment Help
Discussion 2: What Makes a Good Interview?
The intent of a qualitative interview is to encourage,
elicit, and illuminate the interviewee’s experience in rich, thick
detail. Consider that most interviewees will only have a general idea of
your research goals and the depth you need for analysis. Therefore,
your presentation of the interview questions and engagement with the
interviewee are the tools that guide the process.
As you consider your interview, think about:
- Asking of questions to ask to encourage stories and examples
- How to “reframe” questions to reduce ambiguity and bias
- What you can do to make the interviewee at ease
- What you can do to build rapport and trust
For this Discussion, you will examine the characteristics of a good qualitative interview.
To prepare for this Discussion:
- Review the chapters of the Rubin and Rubin course text and consider the characteristics of a good qualitative interview.
- Review the Yob and Brewer interview questions in Appendix A at the
end of the article and consider how interview guides are used in
research. - Review the Interview Guide Instructions and the Interview Guide
Example found in this week’s Learning Resources and use these documents
to guide you during your interview.
By Day 4
Post your explanation of the characteristics of a
good qualitative interview. Also include what makes a good interview
guide. Use the interview questions from Yob and Brewer’s interview guide
to support your post.
Be sure to support
your main post and response post with reference to the week’s Learning
Resources and other scholarly evidence in APA style.
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Harvard University Ch 8 Multicultural Counseling and Therapy Reflection Paper Humanities Assignment Help
After reading Chapter 8, find one additional resource (must be a journal article) and write a 1.5 to 2 page paper (CANNOT be more than 2 pages at all). Your paper should consist of the following categories:
Critical Literature Assessment: Incorporate a synopsis of the readings.
Personal Reflection: What was your personal reaction to the readings? Consider focusing on one theory discussed. Which one were you more connected to? Why? Make it personal!
Clinical Incorporations: Incorporate clinical implications of the material. As a MFT therapist how does this information matter? How may you incorporate it with clients?
Be sure to label each section prior to starting the paragraphs for each one.
Must be in APA7 format. This will be turned in on turnitin.com. NO PLAGIARISM!
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