U.S.GAAP and IFRS provide criteria for distinguishing operating leases from capital leases.Which of the following is not true?
A)Under the capital, or finance, lease method, the lessor records the signing of a capital lease the same as if the lessor sold the leased asset for an installment note receivable.
B)Under the capital, or finance, lease method, the lessee recognizes interest expense on the lease liability, similar to recognizing interest expense on long-term notes or bonds.
C)Under the capital, or finance, lease method, the lessor amortizes the leased asset, similar to recognizing depreciation on buildings and equipment.
D)Under the capital, or finance, lease method, the lessee records the leased asset and the lease liability on the balance sheet at the present value of the contractual cash flows at the time of signing the lease.
E)The capital, or finance, lease method, treats leases equivalent to installment purchases or sales, where the lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale.

Question

Quizplus · Accepted Answer

Under the capital, or finance, lease method, it is the lessee, not the lessor, who amortizes the leased asset over its useful life, similar to how depreciation is recognized on owned assets. The lessor, instead, recognizes a receivable and interest income over the lease term.

USGAAP and IFRS Provide Criteria for Distinguishing Operating Leases from Capital