The criteria for defining the lease as finance lease or operating lease As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease: Transfer of title: The asset is transferred to lessee at the end of the lease period concerned. Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value. If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease . If a lease does not fulfil any of the above four criteria, it would be considered as operating lease . the appropriate classification by lease and state the reason.

Question

Want to see the full answer?

Answer 1

Question

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 2

Question

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Answer 6

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

Answer 7

Chapter 15, Problem 15.6E

(Situation 1)

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a capital lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease.

the appropriate classification by lease and state the reason.

Answer 8

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

Answer 9

(Situation 2)

To determine

the appropriate classification by lease and state the reason.

Answer 10

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

Answer 11

(Situation 3)

To determine

the appropriate classification by lease and state the reason.

Answer 12

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Answer 13

(Situation 4)

To determine

the appropriate classification by lease and state the reason.

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 17

Ch. 15 - Prob. 15.1Q Ch. 15 - Prob. 15.2Q Ch. 15 - Prob. 15.3Q Ch. 15 - Q 15–4 Former IASB chairman David Tweedie has...Ch. 15 - Prob. 15.5Q Ch. 15 - Prob. 15.6Q Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - Prob. 15.8Q Ch. 15 - Prob. 15.9Q Ch. 15 - Q 15–10 What are executory costs? How are they...

Concept explainers

Videos

the appropriate classification by lease and state the reason.

the appropriate classification by lease and state the reason.

the appropriate classification by lease and state the reason.

Want to see the full answer?

Chapter 15 Solutions