Asked by khuong huynh on May 20, 2024
Verified
A lessee will record a leased asset at the lower of the present value of the minimum lease payments or the leased asset's fair value when the lease is a capital lease.
Capital Lease
A lease classified as a purchase by the lessee for accounting purposes, as it transfers substantially all risks and benefits of ownership.
Present Value
The value today of a sum of money to be received in the future, or a series of future payments, based on a chosen rate of return.
Minimum Lease Payments
The lowest amount that a lessee is expected to pay over the lease term, as specified in a lease agreement.
- Learn the specific requisites defined by GAAP for lease management.
- Discern the distinctions between capital and operating leases and their impacts on financial reports.
- Identify the implications of depreciation, expense recognition, and balance sheet treatment for leases according to GAAP standards.
Verified Answer
MV
megan vernonMay 24, 2024
Final Answer :
True
Explanation :
This is a correct statement in relation to the accounting treatment of capital leases. According to accounting standards, lessees are required to record a leased asset at the lower of the present value of minimum lease payments or the fair value of the leased asset when the lease meets certain criteria, such as being non-cancelable and transferring ownership of the asset to the lessee at the end of the lease term. This is because the lessee is effectively purchasing the asset through the lease agreement, and thus the value of the asset is reflected on the lessee's balance sheet.
Learning Objectives
- Learn the specific requisites defined by GAAP for lease management.
- Discern the distinctions between capital and operating leases and their impacts on financial reports.
- Identify the implications of depreciation, expense recognition, and balance sheet treatment for leases according to GAAP standards.