Abstract The article responds to a comment presented by professor G. B. Mitchell regarding the methods used in evaluating financial leases. Mitchell's basic objection to the author's method of analysis is that he did not allow for the tax deductibility of interest and therefore did not obtain a correct after-tax implicit interest rate. It is because the method gives a before-tax rate which is directly comparable to the before-tax marginal cost of borrowing; it was never intended to yield an after-tax rate on the belief that managers are more accustomed to dealing with before-tax rates. Therefore the gross amount of the interest is allowed to flow through to the final cash flow, yielding a before-tax interest calculation. Unfortunately, it works exactly right only when the lease payments are identical to the equivalent loan repayments. If it were, then a simple investment involving a cash outflow in the first year followed by inflows for the rest of the project's life should be evaluated by discounting as a form of financing. Therefore it seems that, although Mitchell's objections to the internal rate of return are technically correct, they are substantially irrelevant to the problem of lease evaluation.

Abstract The use of leases is widespread as a means of acquiring assets, and where such leases provide for payment of substantially the entire cost of an asset during the lease term, the lease has properly been viewed as a form of debt financing, not substantially different from a mortgage in its operating effects. While there has been wide acceptance of the concept of leasing as a form of debt financing, a satisfactory technique for evaluating financial leases has proved to be somewhat elusive. The problem lies in the determination of the "cost" of a lease as compared with debt. It is simple enough to compute the Implicit interest included in the lease payments, but this is insufficient since the use of a lease causes changes in the tax cash flow of the firm. In most textbooks, the analysis of financial leases has generally involved calculating the cash flow, after taxes, of the lease and of the alternative loan, and then discounting these cash flows at the cut-off rate or the cost of capital.

Abstract Reviews the book "How Your Government Can Apply GAAP: An Ernst & Whinney Guide to Better Financial Reporting."

Abstract The article presents information on an introductory accounting course designed to acquaint students not only with business enterprise accounting, but also with fund accounting, national income accounting and the field of social systems accounting. There is a lack of integration of national income accounting with accounting for profit and non-profit entities. National income accounts are heavily dependent on data accumulated within the frameworks of proprietary and fund accounting. Many individuals are willing to accept minute changes in quarterly gross national product estimates as being quite significant, while damning corporate accounting as being arbitrary and capricious. All of the data used in the national income accounts are second-hand, originally developed and reported for different purposes. Therefore, substantial conceptual differences arise between the original intended use of the data and the national income use of the data. These differences are explored, as well as the estimation methods used by the National Income Division, especially for the imputed items.

Reviews the book "Readings in Contemporary Financial Management," by Keith B. Johnson and Donald E. Fischer.

Abstract ABSTRACT: Leaders in the accounting profession have cited the need for accountants to be able to function professionally in a complex and changing environment. The literature of cognitive development suggests that such individuals must possess a high level of cognitive complexity, and the literature on personality types shows that people self-select into professions partially as a result of their perceptions of the professional stereotype. Since the introductory and intermediate accounting courses may profoundly influence students' perceptions and their career choice, the courses should be designed so as to attract those more cognitively complex individuals whom the profession needs. This study analyzes the relative performance of introductory accounting students with high and low levels of cognitive complexity on structured versus unstructured course materials. Students at all levels of cognitive complexity performed equally well on highly structured accounting examination questions, but students with high levels of cognitive complexity performed significantly better on unstructured case materials. The implication of the results is that if accounting educators wish to attract students who can function in a complex and changing environment, the introductory accounting course should include unstructured course materials.