Which of the following best describes current practice in accounting for leases?
A) Leases are not capitalized.
B) Leases similar to installment purchases are capitalized.
C) All long-term leases are capitalized.
D) All leases are capitalized.

Question

Quizplus · Accepted Answer

Current practice in accounting for leases follows the guidance provided in ASC Topic 842, which requires lessees to capitalize all leases that meet certain criteria, such as those with a term greater than one year and leases of property or equipment that transfer ownership at the end of the lease. Leases that are considered similar to installment purchases, such as those with a bargain purchase option or that have a lease term that covers a major portion of the asset's useful life, must also be capitalized. However, short-term leases with a term of 12 months or less may be excluded from capitalization. Therefore, option B, which states that leases similar to installment purchases are capitalized, is the best choice.

Which of the Following Best Describes Current Practice in Accounting