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Part 1: Finance leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee.
Instructions
a. Describe how a finance lease would be accounted for by the lessee both at the commencement of the lease and during the first year of the lease, assuming the lease transfers ownership of the property to the lessee by the end of the lease.
b. Describe how an operating lease would be accounted for by the lessee both at the commencement of the lease and during the first year of the lease, assuming equal monthly payments are made by the lessee at the beginning of each month of the lease.
Do not discuss the criteria for distinguishing between finance leases and operating leases.
Part 2: Sales-type leases and operating leases are two of the classifications of leases described in FASB pronouncements from the standpoint of the lessor.
Instructions
Compare and contrast a sales-type lease with an operating lease as follows.
- a. Lease receivable.
- b. Recognition of interest revenue.
- c. Gross profit.
Do not discuss the criteria for distinguishing between the leases described above and operating leases.
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