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On january 1,2008 Von company entered into two non cancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option: the lease term is equal to 80 percent of the estimated economic life of the machine. The second lease contains a bargain purchase option: the lease term is equal to 50 percent of the estimated economic life of the machine.

Required:

a. What is the theoretical basis for requiring lessees to capitalize certain long-term leases? Do not discuss the specific criteria for classifying a lease as a capital lease.

b. How should a lessee account for a capital lease an its inception?

c. How should a lessee record each minimum lesase payment for a capital lease?

d. How should Von classify each of the two leases? Why?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9412466

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