277 Lease and Rental Vehicles

277 Lease and Rental (CTA Short Term/CTP) Vehicles

Assets

Working

Synopsis

Account 277 is established to record the value of Lease and Rental vehicles that are placed in service in a dealership owned leasing and/or daily rental operation.

Debits

Credits

The Internal selling price of units placed in lease and rental service recorded as depreciable assets
The Cost of units purchased from other dealers and placed in lease and rental service recorded as depreciable assets
The Internal selling price of dealer-installed special equipment, modifications, etc., and the labor and materials required for installation

The amount of factory credits applied to vehicles placed in lease and rental service
The book value of units transferred to used vehicle inventories when taken out of service
The book value of units sold and otherwise disposed of

Example 1

Record the $22,200 sale or transfer of a new vehicle from inventory to lease & rental service. The inventory value is $22,000.

Journal: New Vehicle Sales

Entry:		Debit	Credit
Account 277	Lease & Rental Vehicles	$22,200
Account 621	Cost of Sales – New Cars – Internal	$22,000
Account 231	Inventory – New Cars		$22,000
Account 421	Sales – New Cars – Internal		$22,200

Example 1A

If state and/or local tax regulations require payment of sales or excise taxes on internal sales, then the following example applies.

Journal: New Vehicle Sales

Entry:		Debit	Credit
Account 277	Lease & Rental Vehicles	$22,200
Account 621	Cost of Sales – New Cars – Internal	$22,000
Account 714	Direct Cost – License, Title & Tax	$600
Account 231	Inventory – New Cars		$22,000
Account 421	Sales – New Cars – Internal		$22,200
Account 324A	Sales Taxes Payable – Excise Taxes		$600

Example 2

Record the accrual for the CTP/CTA factory allowance on Lease & Rental Vehicles in the amount of $1000.

Journal: General Journal

Entry:		Debit	Credit
Account 261	Factory Receivables	$1000
Account 277	Lease & Rental Vehicles		$1000

Example 3

Record the $22,200 transfer of a lease unit to used car inventory at the appraised wholesale value. Accumulated depreciation is $8,800 and the amortization cost is $400. The inventory value of the Lease & Rental unit transferred to the used car inventory is $13,000.

Journal: General Journal

Entry:		Debit	Credit
Account 240	Inventory – Used Cars	$13,000
Account 347	Accumulated Depreciation Lease & Rental Units	$8,800
Account 712	Direct Cost – Amortization	$400
Account 277	Lease & Rental Vehicles		$22,200

Example 4

Record the $15,200 sale of a lease unit at the end of the lease. The cost of sale for the disposed vehicle is $15,200 and the accumulated depreciation is $8,800.

Journal: Cash Receipts

Entry:		Debit	Credit
Account 201	Cash in Bank	$15,200
Account 347	Accumulated Depreciation Lease & Rental Units	$8,800
Account 710	Cost of Sales of Disposed Vehicles	$13,400
Account 277	Lease & Rental Vehicles		$22,200
Account 510	Selling Price of Disposed Vehicle		$15,200

Comments

A debit balance represents the book value of lease and rental units. Only dealerships, which have leasing or rental departments operating within the dealership, use this account. As lessor, the dealership is underwriting the lease to the end user. No financial institution is involved in the transaction. Professional tax, accounting and legal advice should be obtained regarding the handling, accounting and management of the dealership owned leasing operation.

Note:

1. When removed from service (and not sold by the Lease and Rental Department), Lease and Rental units should be transferred to Account 240, Used Cars (inventory) or Account 241, Used Trucks (inventory) as applicable, prior to their sales as used vehicles. Such units should be transferred at appraised wholesale value. Any differences between the book and appraised wholesale values should be recorded in Account 712, Amortization (Closed End Lease), Account 722, Amortization (Open End Lease), or Account 732, Amortization (Rental) as applicable.

2. If more than just a nominal number of lease and rental units are in service, a separate general ledger account should be established for the writedown and captioned Account 347, Accumulated Depreciation - Lease and Rental Units . This account should be combined with the related asset account when preparing the trial balance. Lease and Rental accumulated depreciation should be shown as a memo on page 1 line 43 of the Operating Report.

3. Professional tax and accounting advice should be obtained in regard to state and local requirements regarding sales and excise taxes that may be applicable to internal sales.