State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

List the sequence of events for the lessee that leads to a lease arrangement.

Identify the two recognized lease accounting methodsfor lessees and distinguish between them.

At the beginning of a Type B lease, the lessee will record what asset and liability, if any?

Answer 2

Question

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Answer 6

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Answer 7

Chapter 20, Problem 1GI

To determine

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Answer 8

Expert Solution & Answer

Explanation of Solution

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.

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

The criteria for defining the lease as capital 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:

1. Transfer of ownership: The asset is transferred to lessee at the end of the lease period concerned.
2. Purchase (bargain) option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.
3. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.
4. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 20 - Prob. 1GI Ch. 20 - What is the difference between the lessee and...Ch. 20 - Prob. 3GI Ch. 20 - Prob. 4GI Ch. 20 - Prob. 5GI Ch. 20 - Prob. 6GI Ch. 20 - What are the two types of lease classifications...Ch. 20 - Prob. 8GI Ch. 20 - Prob. 9GI Ch. 20 - Prob. 10GI

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Concept explainers

Videos

State the four criteria used to identify the lease as a capital lease or operating lease by the lessee.

Explanation of Solution

Want to see more full solutions like this?

Chapter 20 Solutions