What is a capital lease under GAAP?

What is a capital lease under GAAP?

The capital lease requires a renter to book assets and liabilities associated with the lease if the rental contract meets specific requirements. In essence, a capital lease is considered a purchase of an asset, while an operating lease is handled as a true lease under generally accepted accounting principles (GAAP).

What are the generally accepted accounting principles GAAP for reporting a lease as a capital lease?

To be classified as a capital lease under U.S. GAAP, any one of four conditions must be met: A transfer of ownership of the asset at the end of the term. An option to purchase the asset at a discounted price at the end of the term. The term of the lease is greater than or equal to 75% of the useful life of the asset.

Which one of these conditions qualifies a lease as a capital lease?

How are capital leases accounted for?

Accounting for Capital Leases For instance, if a company estimated the present value of its obligation under a capital lease to be $100,000, it then records a $100,000 debit entry to the corresponding fixed asset account and a $100,000 credit entry to the capital lease liability account on its balance sheet.

Which of the following is not among the criteria for classifying a lease as a capital lease?

Any one of the first four classification criteria and both of the last two additional conditions. Which of the following is not among the criteria for classifying a lease as a capital lease: The noncancelable lease term is equal to 90% or more of the expected economic life of the asset.

Which of the following is a characteristic of a capital lease?

Characteristics of capital leases include: Term of the lease is greater than 75% of the asset’s estimated economic life. The lease includes an option to purchase the asset for less than fair market value. Ownership of the asset is transferred to the lessee at the end of the lease term.