Analysis of Lease Accounting Standards

Analysis of Lease Accounting Standards Abstract The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are reviewing their guidelines on lease accounting this year. This paper provides background information on the Securities and Exchange Commission (SEC), FASB and IASB including what their role is in accounting. It details the history of lease accounting for them, changes that have occurred since the original guidelines were issued, and why the FASB and IASB are looking to update the current standards. History and Future of Lease Accounting for Leases The history of lease accounting provides numerous changes to the standards. FASB 13 is the last major change that has been made and that was 30 years ago. The financial community describes the changes that could arise from the FASB and IASB as an effort to bring transparency to company balance sheets. This is a continuing reaction to Enron and certain happenings earlier in the decade that brought off-balance sheet items to the forefront. There is a lot of focus on off-balance sheet obligations now. Users of financial statements depend on the statements to provide important information about a companys performance, financial condition, and the cash flow. Financial statement users include bankers deciding whether to lend money or renew a loan to a company, suppliers deciding to extend you credit. â€Å"The FASB and IASBs conceptual framework objective is to provide a common framework that provides useful and complete accounting information† (Monson, 2001). Standard Setting Bodies Security and Exchange Commission The Security and Exchange Commission (SEC) was established in 1933 after the Crash of 1930. Prior to this time there, no standard setting body existed. Even after its formation, the SEC encouraged the private sector to set them. In 1934, the SEC received the authority to establish financial accounting and reporting for publicly held companies. Committee on Accounting Procedures In 1939, the SEC suggested that the American Institute of Certified Public Accountants (AICPA) create a formal standard setting body. The AICPA established the Committee on Accounting Procedures (CAP). During its reign from 1939 to 1959, they issued 51 Accounting Research Bulletins. CAP was not as successful as had been hoped. CAP only issued standards on problems as they occurred. These standards are known as Accounting Research Bulletins or ARBs. Accounting Principles Board The Committee on Accounting Procedures was replaced with the Accounting Principles Board (APB) in 1959. They issued 31 opinions and 4 statements over the next 14 years. They are credited with the development of Generally Accepted Accounting Principles (GAAP) from the opinions and statements they issued. Financial Accounting Standards Board The APB was replaced by the Financial Accounting Standards Board (FASB), which was formed in 1973. FASB is an independent board with full-time members who no longer work in private firms or their employers. FASB establishes standards for businesses in the private sector. As part of the FASB mission statement it states that, â€Å"standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable information† (Financial, 2007.). In Facts about FASB (2007), the FASB seeks to accomplish their mission by acting to keep standards current to reflect any changes in methods of doing business, to improve the usefulness of financial reporting by focusing on relevance, reliability, comparability, and consistency, and to promote the international convergence of accounting standards. International Accounting Standards Board The International Accounting Standards Board (IASB) established in 2001 is based in London. It succeeded the International Accounting Standards Committee (IASC), which was founded in 1973. The IASB develops a solitary set of global accounting standards that provide transparent and comparable information in financial statements. The IASB works with national accounting standards bodies to accomplish a united set of accounting standards to be used around the world. Original Standards for Leases ARB 43, Chapter 14 In 1949, the Committee on Accounting Procedures issued ARB 43, Restatement and Revision of Accounting Research Bulletins, Chapter 14 Disclosure of Long-Term Leases in Financial Statements of Lessees. ARB 43, Chapter 14 only provides guidance for leasing land and buildings. ARB 43 (1953) requires that the lessee assumes all the expenses and obligations of ownership, such as taxes, insurance, and repairs. These types of arrangements differed from conventional long-term leases but the principles of disclosure were intended to be applied to both types of arrangements. The disclosures that need to be reported included the amount of annual rent to be paid, the period for which the payments are payable. The disclosure is to be reported for the life of the lease not just the first year. In the first year of the lease, the disclosure needs to detail the transaction (FASB, 1953). APB Opinion No. 5 The Accounting Principles Board issued Opinion No. 5, Reporting of Leases in Financial Statements of Lessees in September 1964 and supercedes ARB 43, Chapter 14. Since ARB 43 had been issued, leases had been disclosed on financial statements but not in a consistent manner. The information disclosed was often not enough for investors to get a clear picture of a companys financial position. According to APB Opinion No. 5 (1967), there had been very few instances of capitalization of leased property and recognition of the related obligation. In Accounting Principles Boards Opinion No. 5, rental (lease) payments for services, property taxes, utilities, maintenance, etc. are to be treated as an expense. Having the right to use property and paying a specific rental amount over a period are not considered an asset or liability. An operating lease should disclose relevant information about the lease or rental agreement and the information disclosed will vary from one situation to another. Lessees were to disclose the minimum annual payments and length of time at the least. The maximum they should disclose was the type of property leased, the obligation assumed, requirements of the lease. APB No. 5 (1967) states a capitalized lease may require a note or schedule to disclose the details of the lease agreement. Lease arrangements that are similar to an installment purchase should be listed on the balance sheet and depreciated accordingly. For a lease agreement to be capitalized there should be material equity in the purchase. IAS 17 The International Accounting Standards Board (IASB) issued IAS 17, Accounting for Leases, in September 1982. A lease is classified either as a finance lease or an operating lease. A finance lease is classified as such â€Å"if it transfers substantially all the risks and rewards† (International, 2003) to the lessee. Leases are classified as an operating lease if they do not meet the criteria of a finance lease. The following situations would lead a lease to be classified as a finance lease: Transfer of ownership of the asset to the lessee at the end of the lease The lessee has the option to purchase the asset at an amount that is sufficiently lower than the fair value The lease term is for most of the assets life At the beginning of the lease, the present value of the minimum lease payments is equal to the fair value of the asset. (International, 2003) IAS 17 (2003) requires that the following accounting principles be applied to finance leases. The finance lease should be recorded as an asset and a liability, lease payments should be distributed between finance charges or interest expense and the principle amount of the liability, and depreciation should be calculated using the same method as that of the companies owned assets. The International Accounting Standards Board (2003) defines the disclosure requirements lessees of finance leases must follow. Lessees of finance leases disclose the carrying amount of the asset, reconciliation between total minimum lease payments and the present value, amounts of minimum lease payments as of the balance sheet date, and the present value for the next years, years 2 through 5 combined, and beyond 5 years and a general description of the lease arrangement. In section 35 of IAS 17, the International Accounting Standards Board (2003) provides disclosure details for lessees of operating leases. Lessees must recognize lease payments as an expense on the income statement. They should provide in the financial statement disclosure a description of the lease arrangement, including any provisions, whether there is a purchase option, and any restrictions that are imposed. Also, lease payments as of the financial statement date for the next year, years 2 through 5 combined, and beyond 5 years. Changes to Original Standards APB Opinion No. 31 The Accounting Principles Board issued Opinion No. 31, Disclosure of Lease Commitments by Lessees, on June 1972 with an effective date of January 1, 1974. Opinion No. 31 was developed because investors, grantors, and users of financial statements acknowledged that at the time the disclosures did not provide all the information they deemed important. The APB issued it to clarify and now require the disclosure requirements of APB Opinion No. 5. The Board did not want to establish any disclosure requirements because the FASB had placed leases as a subject on its agenda at the time this was issued. The Board was hesitant because they did not want to bias the decision. The Board reworded its requirements for the disclosures of operating leases. A lease that is for one year or more needs to provide the total rental expense. The minimum rental payments should be disclosed for each of the five succeeding years, each of the next three to five year periods, and the remainder should be listed as a single amount. Additional disclosures that should be included are whether the payments are dependent upon any factors other than time, if so what is the basis for calculating the payments, is there a purchase or renewal option, and any restrictions. (FASB, 1973) FAS 13 In November 1976, the Financial Accounting Standards Board issued FAS 13, Accounting for Leases. The issuance was to provide detailed criteria that other statements had supplied for classifying leases that would prevent many different interpretations. This statement superseded APB Opinion No. 5, Reporting of Leases in Financial Statements of Lessees and APB Opinion No. 7, Reporting of Leases in Financial Statements for Lessors. FAS 13 established standards of financial reporting for both lessees and lessors. The standard provided a definition of leases, how leases should be classified, and what needed to be disclosed. The Financial Accounting Standards Board (1976) defined a lease as â€Å"an agreement conveying the right to use property, plant, or equipment usually for a stated period of time†. This definition includes agreements that although may not be identified as a lease but falls under the definition. FAS 13 (1976) states that a lease is classified either as an operating lease or as a capital lease. Capital leases meet one or more of the criteria FASB established for a capital lease. The criteria for classifying leases as a capital lease are: The lease transfers ownership of the asset at the end of the lease term. The lease contains a bargain purchase option The lease is longer than 75% of the products economic life The present value of the lease is more than 90% of the asset value using the lessees incremental borrowing rate. (FASB, 1976) FAS 13 provided the following accounting principles that are applied when it is determined that a lessee is involved in a capital lease. The lessee records a capital lease as an asset and liability for the amount equal to the value of the lease payments. If the lease has a bargain purchase option or if the property transfers ownership at the end of the lease term, the asset is depreciated according to the lessees normal depreciation for owned assets. If the lease does not contain a bargain purchase option or if the property does not transfer ownership at the end of the lease, the asset is depreciated for the life of the lease. Leases that do not meet the criteria of a capital lease are classified as an operational lease and are treated as an expense for the term of the lease on the income statement. (FASB, 1976) Capital leases should disclose the gross amount of the asset and the future minimum lease payments. Operating leases should disclose the future minimum rental payment required, a general description of the terms of the lease agreement to include how the rental payments are determined, terms of renewal or purchase option, any restrictions that may apply. FASB and IASB to Update Lease Standards In July 2006, the FASB and IASB announced that it had added a leasing project to its agenda to reconsider all aspects of lease accounting. One reason for the project is to harmonize lease accounting standards with the IASB. â€Å" The IASB and FASB currently have substantial differences in their treatment of leases; particularly notable is that the â€Å"bright line† tests of FAS 13 (whether the lease term is 75% or more of the economic life, and whether the present value of the rents is 90% or more of the fair value) are not used by the IASB, which prefers a â€Å"facts and circumstances† approach that entails more judgment calls† (Open, 2006). Both the FASB and IASB have the finance and operating lease concept. However, their criteria are different for classification. Another reason is a request from investors and other authoritative bodies who have been criticizing that similar lease transactions were still being accounted for in different ways. In the SECs 2005 report in response to Sarbanes-Oxley the SEC stated that too many leases were being kept off the balance sheet. â€Å"The commissions staff estimated that the standards allow publicly traded companies to keep an undiscounted $1.25 trillion in future cash obligations off their balance sheet† (Leone, 2006). Therefore, the current accounting standards are failing to provide the necessary complete and transparent information. FASB and IASB hope to have an exposure draft available in 2009. Solutions There are two solutions to the lease problem. The FASB and IASB can either recommend leases to be reporting on a companys income statement only as an expense or on a companys balance sheet only as an asset and liability. Income Statement Only Using the income statement only solution, companies would report their leases as operating lease. An operating lease recognizes the lessees payments as rent expense or lease expense on the income statement. Balance Sheet Only Using the balance sheet only solution, companies report their leases on the balance sheet as an asset and liability. It will also allow for depreciation and interest expense on the income statement. Capitalization of all leases will bring previously unreported assets and liabilities onto the balance sheet Analysis When companies lease an asset, the way it is accounted for depends on whether it is categorized as an operating or capital lease. How a lease is categorized may be different for tax purposes then for accounting purposes. The GAAP standards and Internal Revenue Service can have different sets of criteria. According to IRS Revenue Ruling 55-540 the IRS is wary of lease arrangements used to accelerate depreciation deductions. The IRS has no general rule for leases and each case is decided on an individual basis. However, from decisions previous made the following factors indicate a sale instead of a lease. If the asset meets one or more of the factors, it is considered a sale NOT a lease. A portion of the payments are specifically allocated as interest or it is obvious that is what is intended. The title is transferred at the end of the â€Å"rental† term. The lessee may purchase the asset at the end of the lease term for a bargain purchase price. When a lease qualifies as an operating lease, there are major consequences for the net income or loss and the return ratios of that company. In general, both the operating and net income of the firm will be decreased and the assets and liabilities for the firm will be understated. Debt management ratios are important to creditors and stockholders. Creditors want to make sure funds are available to pay interest and principal and are therefore particularly interested in short-run coverage ratios. Stockholders are concerned about the impact of excessive debt and interest on long-term profitability. Lenders and investors use such ratios as debt to equity, current ratios, and return on assets to evaluate the credit risk of current or prospective businesses. Ratios are used to measure the effectiveness that a company uses its assets and to compare a companys current performance. As shown below in the comparison of ratios in an operating or capitalized lease, the financial ratios can be misleading just by reporting leases off the balance sheet. By reporting the lease of ABC Restaurant, Inc. (Figures 1-4) as an operating lease or ABC Restaurant, Inc. (Figures 5-8) as a capitalized lease, the companys financial statements are affected. The financial statements of both are identical except for the accounts that were affected by the relative lease. The financial statements are not as accurate as investors and lenders are demanding. The current ratio is a quick indication of whether or not the company will have the means to pay its bills during the next year. It is clear to remain solvent, a company must have at least as much money coming in as it has going out. The current ratio is .31 for the operating lease and .30 for the capitalized lease. A current ratio over 1.5 to 2.0 is generally required for comfort. The debt ratio for the operating lease is 1.68%. In comparison, the debt ratio for the capitalized lease is 1.64%. A high debt ratio is generally viewed as risky by lenders and investors. The debt to equity ratio equals -1.32 and their return on assets is 38.45%. In relation to the capitalized lease which had a debt to equity ratio of -1.40 and their return on assets is 34.05%. The effect of a capital lease on net income is different then that of an operating lease because capital leases are treated the same as if assets are bought by the company. The company is allowed to claim depreciation on the asset and the interest payments on the lease are a tax deductions. By reporting assets on the balance sheet, this provides an increased level of information to lenders. This is especially useful to lenders of non public business or the small (S Corporations) who elect to omit disclosures on the financial statements. When a company does this those who review their financial statements will be misled because there will be no evidence of a lease existing. The payments will be accounted for on the income statement as rent expense or lease expense. Thereby, reducing the net income of those companies income statements. The AICPA issues Statements on Standards for Accounting and Review Services. The FASB issues standards for the public. The process for both the AICPA and the FASB starts with deliberations that are open to the public; the proposed Statements are then issued as Exposure Drafts, which allows the public to comment on them prior to the final pronouncement issued. Many accountants issued their opinions on what they feel should be done about this 30-year-old standard. Conclusion Currently, the lease standards are outdated. â€Å"Lease arrangements have evolved considerably over the past 30 years and the standards are outdated† (Miller, 12). FAS 13 was suppose to force leases to be capitalized but it did nothing but help lease companies create more cunning operating leases. The misclassification of leases affects not only the balance sheet but also the income statement and cash flow statement.

Ninety-Five Theses Paper

During the earlier years of Christianity, at a time when most Catholic leaders were focused on political values rather than spiritual values, people would pay money for indulgences in order to remove the temporal punishments attached to their sins. Michael Mullet's non-fiction work Martin Luther's Ninety-Five Theses studies the roots of the Protestant Reformation by giving detailed background information on Martin Luther and how Luther contributed to a religious revolution which would change the way of Christian life.Martin Luther's work allowed people to question their faith and gave people the courage to open their own churches even in the face of powerful Catholic leaders. By looking at how Luther interpreted ancient religious scriptures in order to understand God, we are able to see how he transformed into one of the greatest theologians in history and â€Å"broke the hold of the Catholic Church over Europe† (Mullet, 2003, p. 46) One of Luther's first major steps into foll owing his beliefs was defying his father's ishes for his son to become a lawyer and instead Luther became an augustinian monk.Luther was not Just simply being rebellious, but rather was driven by spiritual turmoil when comprehending God and his teachings which led Luther to immerse himself in his studies regarding the sacred texts. Through years of internal conflict and searching for religious purpose Luther was able to reach enlightenment by interpreting God's Judgment as something that should not be feared when faith alone is what brought you salvation.So when he witnessed papal indulgences he ungracefully nailed his 95 Theses to the door of a church arguing against the sales of indulgences which intimidated the church with bold statements that questioned their and God's power. Martin Luther's 95 Theses quickly grew into something more than Just a debate between powers and spread throughout Europe with the help of the printing press. The church was incapable of ignoring Luther's s harp statements and it seemed Luther made no hesitation to push back against authority if he was given the chance.The papal authority could not allow Luther to continue threatening their standing in power and ultimately branded Luther as a heretic and banished him from the Holy Roman Empire. Luther was able to hide in a castle with the help of his friends and once in solitude he was able to translate the New Testament into German for the public to read and interpret on their own. Martin Luther's courage to stand up against the Catholic church gave others the strength to choose and question religion, but peace among the new churches and the Catholic churches would not exist ithout the shed of blood and powerful claims.Martin Luther's concept of God arose from his deep anxiety and is described by Michael Mullet in his book Martin Luther's Ninety-Five Theses as â€Å"sinners won acceptance from the God the Father – were ‘Justified' – not actively, through their goo d deeds, but passively and simply by taitn r st na died on the Cross to save them† (p. 47). Luther gave us the power to break the holy chains binding people to their faith and explore a world without limitations. Dr. David Powlison – On MartinLuther's first of the 95 Theses says that Martin Luther's teachings can help us not only understand god but ourselves and others as well. The moment when a person truly reaches enlightenment is when he/she is able to grasp the realization that every single person in your life is real and alive as you are. That these people are not Just wondering faces but actual people like yourself with families and futures of their own. This sonder is what Martin Luther was trying to accomplish in his work along with sharing his interpretation of God's sacred texts.

Climates and Climate Related Factors Essay

Tropical wet climates or wet equatorial climates are usually found in areas near the equator as the name states. These areas include the Amazon, Congo, Southeast Asia and are sometimes found in the trade wind belts. The Koppen symbol for this type of climate is Af. This climate has the smallest temperature range in the world being between 2 and 3.6 degrees. These areas don’t have a dry season because of the close proximity to the equator which covers 5-10 degrees. The weather remains constant being warm and wet year around. Tropical wet climates see 60-100 inches of rain annually and experience convective thunderstorms. This climate is known for being seasonless due to the consistency in day to day weather. The reason for thse constant weather patterns is mainly location. The latitude position allows sun coverage directly above creating uniform insolation. Also, the ITCZ creates the year around humid, unstable air. These weather conditions create oxisol and latosol soils which are the least fertile; however, are an ideal location for tropical rainforests to emerge. Tropical rainforests and selva are home to animals such as birds, reptiles and insects. Those who live in these types of climates may use the weather to their advantage with agriculture, forestry, and with slash and burn cultivation. Tropical savanna climates are found further from the equator extending to 25Â °N and S latitude. The Koppen symbol for this type of climate is Aw. Characteristics that make this climate distinctive is the alternation of a wet and dry season. Locations that experience the Aw climate are Africa, S. America, and N. Australia. Winters in this climate are dry with clear skies and are associated with subtropical highs. The summers are wet with many thunderstorms anf convectional rain of the ITCZ. The tropical savanna sees an average of 35 to 70 inches of rain annually which mostly comes from the summer season. The average annual tempeteature range is 5 to 15Â °. A surplus of the water supply comes during the summer. These weather conditions create a laterite soil type making it an ideal location for grasslands and tall grasses to thrive. These grasslands are home to lions, gazelles and zebras. Those who live in these locations can create ranches with animals or use the wildlife to their advantage for ecotourism. The tropical monsoon climate is similar to the tropical savanna climate in the way they both have wet summers and dry winters. The Koppen symbol for this climate is Aw. This type of climate is found in areas such as southeast Asia, western Africa, northeastern South America, the Phillipines, northeastern Australia, and some islands of the East Indies. It isn’t uncommon to see 30 inches of rain within two or three months in the summer. The annual total rain in inches falls within 100 and 200. There is a surplus of rainfall in the summer and a deficit in the winter. The tropical monsoon climates are dominated by offshore winds and seasonal reversal of winds. Latosol soils, red or yellow in color, are found in the Aw climate allowing deciduous forests with some grasses to grow. Birds, reptiles and insects call this climate home. Those who live in tropical monsoon climate can build plantations, grow rice or sugarcane. The tropical desert climate, or Bwh, is found in North Africa and southwestern Eurasia. Moist winds are kept out of this area by the Andes mountains. These locations are found 25-30 degrees N and S latitude. The tropical desert climate experiences very hot summers and mild winters. The annual temperature ranges 15 to 25Â °F with scarce rainfall typically less than 12 inches. Climatic controls that cause these weather patterns are cool ocean currents that cool any air that comes across it and subsidence from subtropical highs. The desert has aridosol soil which is fertile, but requires irrigation. Snakes, birds, reptiles and rabbits call the tropical desert climate home. Those who call the tropical desert home can create jobs by salt mining. The steppe climate, or Bsh, is very similar to the tropical desert climate and surround the Bwh climates except on the western side. They are found mostly on the edges of the desert. Rainfall is somewhat greater than the tropical desert climate and temperatures are slightly moderated with hot summers and mild winters. The weather system is controlled by cool ocean currents and is affected by the rain shadow of mountains. The steppe climate has short grasslands making it an ideal home to many reptiles, snakes, birds, and rabbits. Chestnut/brown soils allow these grasses to grow. Those who call the steppe climate home may take up cattle ranching to earn an income. The humid subtropical climate, represented as Cfa Cwa and Cwb, is located at 30 degrees latitude on eastern sides of the continents. Some locations that experience this type of climate include North America, South America, and Eurasia. The summers at this latitude are warm and hot, while the winters are mild to cold. During the summer, the average temperature ranges between 75 and 80 degrees. These climates receive convectional rain during the summer and cyclonic rain during the winter. Annual precipitation is abundant between 40 and 65 inches. The location of the humid subtropical climate plays a huge role on the climate. It is located in between and on up tilted side of subtropical high pressure cells. There is gray/brown or yellow podsol soil in this climate allowing forest growth. Forests also bring along the forest animals such as deer, raccoons, and black bears. This also makes it an ideal farming area. The Mediterranean or sometimes referred to as the Dry- summer sub-tropial climate, is known as Csa or Csb. These C climates are located 35 degrees North and South latitude. Some locations that experience this type of climate include Southern Europe, Central Chile, and the South tip of Africa. Summers in these locations are hot and dry with wet, mild winters. Average annual precipitation ranges from 15 to 25 inches. Rainfall in the Mediterranean is cyclonic. A large amount of the precipitation falls in the winter and summers are mostly rainless. These weather patterns are controlled by the subtropical high pressure cells. There is a deficit of rain in the summer and a surplus in the winter. The soils in these C climates can be very fertile if irrigated. The soil is a chestnut/brown pedical which is very dry with an abundance of calcium. Chaparrals thrive in this type of climate. They take on a brown/yellow color in the summer and become green in the winter. Mountain lions, bears, deer, coyotes, gofers and birds call this climate home. These areas are used for agriculture with irrigation in the winter. Moving further from the equator at 40-60 degrees North and South latitude is the West Coast Marine climate. The koppen symbols for this type of climate are Cfc and Cfb. Some major locations within this climate are Western and Central Europe, the Western side of North America, and New Zealand. For this latitude, these areas experience very mild winters as well as mild summers. Westerly winds adjacent to the ocean are the reason for the mild summer and winters. It is wet year around due to oceanic influence with an annual rainfall between 30 and 50 inches received mostly in the winter. Podsol or spotosol is the soil type this climate allowing needle leaf forests with some deciduous trees to grow. Deer, bears, birds and other forest animals call this climate home. These forests may be used people for lumbering to gain a profit on the lands. The mid-latitude desert and steppe climates are also very similar. First, the mid-latitude desert climate, or Bwk, can be found distant from the ocean and surrounded by mountains. Some of these locations include central Eurasia, North American and southern South America. The Bwk region receives most of its precipitation during the summer when warming is occurring. This warming also causes the ice to melt and create more of a water supply. The winter is dominated by severely low temperatures and anticyclonic conditions. These low temperatures create a much lower annual temperature range than the subtropical desert climate. The most fertile soil in the world is found in the mid-latitude climate allowing grasslands to grow. These grasslands are home to grass eating animals and the lands are used for animals to graze. The mid-latitude steppe climate, or Bsk, isn’t much different from the desert climate. It’s mainly used as a transition between desert and humid climates. Some areas that experience these climates are in found in the interior southwest of the United States such as Colorado. The temperatures in the Bsk climate are similar to the desert climate; however, have more precipitation and lesser temperature extremes. These climates are similar in the way that they are both grassland oriented, home to grass eating animals, and the land is used for animals to graze. Moving even farther from the equator, between 35 and 55 degrees North and South latitude, is the Humid Continental climate, or Dfa, Dfb, Dwa, and Dwb. Eurasia and North America are a couple locations that have this type of climate. They experience long, very cold winters and hot summers. Precipitation is not high ranging only between 20-40 inches. Westerly winds and storms, especially in the winter play a key role in the weather conditions. The average winter month temperature is usually between 10 and 25 degrees F. Gray-brown podsols are found in the humid continental climate as well as prairie grasses and mixed forest, deciduous and evergreen. There is a large variety or mammals and birds. The humid continental climate is ideal for farming. 50 to 70 degrees North and South latitude is the Continental Subarctic climate, or Dfc, Dwd, Dfd, and Dwc. Locations that experience this climate are Western Alaska across Canada, Eurasia, and Scandanavia. There are extremely cold winter conditions in these D climates with a light amount of snow that falls during the winter; however, little melting takes place until the summer. Cyclonic storms alternate with prominent anticylonic conditions. The annual precipitation is 5-20 inches. Also, continentality is also a key factor in the reason for the cold winters and hot summers. The absolute annual temperature variation has sometimes been as dramatic as -90 degrees F to 98 degrees F. Podsolization occurs here making the soil cold and wet. This is an area where evergreen trees will thrive and be a home to animals such as deer, birds, bears and elk. Many people use these locations for forestry. The last two climates are Tundra and the Icecap which are both cold climates. The Tundra, or ET climate, is located pole ward of the margins and occupies small coastal areas in the Antarctic. The warmest month will only reach up to 32 degrees F making it extremely difficult for plant life other than small bushes and grasses to grow. The ET climate experiences long, cold winters and cool summers. Most of the precipitation falls during the summer, but is less than 10 inches annually that falls mostly in the form of snow. There is a low evaporation level due to the low temperatures. Tundra soil is found in these climates. Polar bears and some birds can tolerate the coldness of the ET climate and many people use these animals for fur trapping. The last climate is the Icecap or EF climate. Antarctica and Greenland are two locations that experience these freezing weather conditions. 50 degrees F is the average temperature of the warmest month found on the very edge of the Tundra. More towards the center of the tundra, temperatures don’t exceed 32 degrees F. There is a sparse amount of precipitation in this climate with only less than 5 inches all in the form of snow. The cause for these freezing temperatures is mostly the latitude location. Also, the distance from sources of heat cause cold temperatures. There is no soil type here, with no vegetation and no economic activity.

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