ACC 306 Week 5 Final Paper (Lease)

May 1st, 2015
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ACC 306 Week 5 Final Paper (Lease)

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Leases ACC306 - Intermediate Accounting IINameProfessor DateLeasesAccording to our text, regardless of the legal form of the agreement, a lease is accounted for as either a rental agreement or a purchase/sale accompanied by debt financing depending on the leasing arrangement. However, I firmly believe that because of the professional judgment that is needed to differentiate between leases, it is still very easy to misrepresent the truth on a firms balance sheet.When accounting for leases, an operating lease records no asset or liability on the financial statements and the amount paid is expensed as it is incurred. On the other hand, a capital lease is recorded as both an asset and a liability on the financial statements and generally at the present value of the rental payments. However, individuals and firms can and would abuse the recording of Operating and Capital Leases for their benefit. Therefore, the FASB made up specific guidelines that are used to determine the criteria for Capital Leases. A Capital Lease is non-cancellable and one or more of the following must be met: 1. The agreement specifies that ownership of the asset transfers to the lessee.2. The agreement contains a bargain purchase option. 3. The lease term is equal to 75% or more of the expected economic life of the asset.4. The present value of the minimum lease payments is equal to or greater than 90% of the fair value of the leased asset (Spiceland, 2007). On the othe

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