Which of the following amortization policies is correct for a capital lease of both land and buildings that transfers title or contains a bargain purchase option?
A)The total capitalized cost of the lease less any expected residual value is allocated over the expected economic life of the assets.
B)The total capitalized cost of the lease less any expected residual value is allocated over the lease term.
C)An amount is assigned to Leased Buildings that is amortized over the lease term, and the amount assigned to Leased Land is not amortized.
D)An amount is assigned to Leased Buildings that is amortized over the expected economic life of the asset, and the amount assigned to Leased Land is not amortized.

Question

Quizplus · Accepted Answer

According to ASC 840-30-25-1, when a capital lease transfers title or contains a bargain purchase option, the lease must be amortized over the useful life of the assets or the lease term, whichever is shorter. In this case, the assets being leased include both land and buildings.

ASC 970-605-25-1 states that land is not subject to amortization, so the amount assigned to Leased Land is not amortized.

Therefore, the correct amortization policy for this type of capital lease is to assign an amount to Leased Buildings that is amortized over the expected economic life of the asset, and the amount assigned to Leased Land is not amortized. Choice D is the only option that reflects this policy.

Which of the Following Amortization Policies Is Correct for a Capital