Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.

Assume a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease. Discuss the impact that such an operating lease has on financial statements and related financial information as compared to the effect that a capital lease would have.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2QTD

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What is the basic difference between the accounting procedures used by a lessor for a sales-type lease and those used for a direct-financing lease?
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See attached picture A) What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease.
For companies that prepare their financial statements in accordance with both U.S. GAAP and IFRS, a lease is deemed to be a capital lease (usually called a finance lease under IFRS) if substantially all risks and rewards of ownership are transferred. In making this distinction, less judgment, more specificity is applied using a. IFRS. b. U.S. GAAP. c. Either U.S. GAAP or IFRS. d. Neither U.S. GAAP nor IFRS.
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A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. True or false explain
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