USA How to book a Company associate "renting" a company car

[FooserX]

Aloha Everyone!

Here's the scenario:

Real Estate company has an auto loan for $1000 a month for 72 months.
They want to have an associate (not a paid employee, not a client) reimburse the bank loan payment for 3 years. How would this be booked?
I believe the Real Estate company will retain the use of the asset after 3 years, but I'm not sure.

I would think, each month:
Dr. Note Payable for the car
Cr. Cash (from Real Estate Company)
Dr. Cash (from Associate)
Cr. Other income

Any thoughts?

Thanks!

 

[kirby]

Really not sufficient info on the facts of the case.

Is it that the associate will use the car for three years and so is renting it from the company for three years? And I’m not touching the legal or insurance issues that rise up here.

 

[FooserX]

Yes, he is using the car for three years.
I did not think of the insurance. I guess I would assume he would have his own?
Are there other questions I should be asking?

 

[kirby]

During those 3 years the real estate company should continue to pay the loan themselves. But also collect the loan payment from the associate. This is safer for you than just assuming the associate will make the payment. So when you collect the associate's payment, you Dr cash and credit the expense.
As for legal and insurance, you have to read your agreements with them to see if they allow you to subrent to someone else. Or you can call them directly.
Also, will you require the associate to take the car in for oil changes and regular maintenance? Note that this puts you in the car rental business and you may not have the needed expertise for that.

 

[FooserX]

You say credit the expense from the reimbursement payment. What is the expense?

why is it not other income?

They are not in the car renting business… So I would not put it as income, but I am trying to understand how this is an expense for the real estate company

 

[kirby]

I was unclear, sorry.
Each month you will record the expense of the car loan payment that the real estate company makes to the loan company.
When the associate has the car, the associate pays something, I assume the same amount, to the real estate company. So yes actually the check from the associate should go to other income and not to the acct. to offset the real estate company’s expense of the loan payment, which I originally thought.

 

[vpryce]

Aloha Everyone!

Here's the scenario:

Real Estate company has an auto loan for $1000 a month for 72 months.
They want to have an associate (not a paid employee, not a client) reimburse the bank loan payment for 3 years. How would this be booked?
I believe the Real Estate company will retain the use of the asset after 3 years, but I'm not sure.

I would think, each month:
Dr. Note Payable for the car
Cr. Cash (from Real Estate Company)
Dr. Cash (from Associate)
Cr. Other income

Any thoughts?

Thanks!

In this sense the Real Estate company is actually leasing/renting the car to the associate. Consequently, yes, you do record your monthly lease payment as normal, and credit other income and debit cash when funds are received are from the associate.

Also, please take note that based on the proximity between associate and company the same transaction can be considered compensation, if its is not an arms length deal and would be considered so in the eyes of the ordinary man.

 

[stevuke79]

In this sense the Real Estate company is actually leasing/renting the car to the associate. Consequently, yes, you do record your monthly lease payment as normal, and credit other income and debit cash when funds are received are from the associate.

Also, please take note that based on the proximity between associate and company the same transaction can be considered compensation, if its is not an arms length deal and would be considered so in the eyes of the ordinary man.

Everything you just said.

This is a leasing arrangement. I would recommend drafting a leasing agreement that mirrors the note payable.

The associate books rent expense and the company books rental income (presumably non operating).

The associate shouldn't pay the note directly.