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 lessee records the signing of a capital lease the same as if the lessee 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 lessee 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

Option A is incorrect because under the capital or finance lease method, the lessee does not record the signing of a lease as if they sold the leased asset for an installment note receivable. Instead, the lessee recognizes the leased asset and lease liability on their balance sheet, reflecting the obligation to make lease payments and the right to use the asset over the lease term.

USGAAP and IFRS Provide Criteria for Distinguishing Operating Leases from Capital