Asked by Bella Carranza on Apr 29, 2024
Verified
Lessees may try to avoid having a lease be classified as a capital lease.Explain why a lessee might want to avoid a capital lease and how the FASB rules may be overcome to allow classification as an operating lease.
Capital Lease
A lease agreement where the lessee essentially becomes the owner of the asset for accounting purposes, often including an option to purchase at the lease's end.
Operating Lease
An operating lease is a lease agreement for the use of an asset where the lessee obtains rights to use the asset for a fraction of the asset's useful life without ownership transfer.
FASB
The Financial Accounting Standards Board is responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations following Generally Accepted Accounting Principles (GAAP) in the United States.
- Gain insight into the disclosure obligations related to Unearned Interest in leasing agreements and the principles supporting capital lease accounting practices.
Verified Answer
Learning Objectives
- Gain insight into the disclosure obligations related to Unearned Interest in leasing agreements and the principles supporting capital lease accounting practices.
Related questions
A Company Desires to Replace Its Current Plant Equipment with ...
Under a Capital Lease the Lease/asset Is Reported on the ...
Operating Leases Are Leases That the Lessee Must Capitalize on ...
A Capital Lease Requires the Lessee to Record the Lease ...
The Lessee Has Substantially All of the Benefits and Risks ...