Given its importance, how does the accounting profession determine whether a lease is an operating lease or a purchase capital lease?
A) whether the item being leased is a capital asset or not
B) whether title is likely to pass at the end of the lease period
C) by observing what ledger account the transaction was recorded in
D) by asking whether the asset is to be used short- term or long- term
E) by determining the intentions of the lessee

Question

Quizplus · Accepted Answer

The accounting profession determines whether a lease is an operating lease or a purchase capital lease based on whether title is likely to pass at the end of the lease period. If the lessee is likely to obtain ownership at the end of the lease, then it is considered a capital lease. If not, it is considered an operating lease.

Given Its Importance, How Does the Accounting Profession Determine Whether