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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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List the five criteria used to determine if a lease is classified as a finance lease by the lessee.

To determine

State the five criteria used to determine if a lease is classified as a finance lease by the lessee.

Explanation

Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.

Operating leases: In an operating lease lessor retains all ownership risks and responsibilities.

Finance leases: In finance lease all the ownership risks and responsibilities are transferred from the lessor to the lessee.

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

Criteria for classificationWhether criteria met or not
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