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Accounting for leases: Pros and cons

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As a CPA of a company, which method of accounting for leases would you recommend using? What are the pros and cons ?

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Solution Summary

The tutorial is 364 words and describes the two potential treatments. It gives 3-4 pros for each method and 3-4 cons of each method.

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The CPA does not "get to decide" the method of accounting for leases. The method is determined by the features of the lease. If the lease conveys ownership at the end of the lease, has a bargain purchase option, extends for more than 75% of the asset's life or the present value of the payment is 95% of the asset's value, then the lease is treated as a financed-asset purchase (record purchase of asset and related liability to make payments as if a loan). If it does not qualify as a financed-asset purchase, ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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