Generally accepted accounting principles require that certain lease agreements be accounted for as purchases.The theoretical basis for this treatment is that a lease of this type
A) effectively conveys all of the benefits and risks incident to the ownership of property.
B) is an example of form over substance.
C) provides the use of the leased asset to the lessee for a limited period of time.
D) must be recorded in accordance with the concept of cause and effect.

Question

Quizplus · Accepted Answer

When a lease agreement effectively conveys all of the benefits and risks of ownership, it is essentially a purchase of the asset. Therefore, it should be accounted for as such in accordance with generally accepted accounting principles.

Generally Accepted Accounting Principles Require That Certain Lease Agreements Be