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    Criteria for capital lease

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    Doherty Company leased equipment from Lambert Company. The classification of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and Lambert.

    Required:
    a) What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?

    b) What criteria must be met by the lease in order that Lambert Company classify it as a sales-type lease or direct financing lease?

    c) Contrast a sales-type lease with a direct financing lease.

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    https://brainmass.com/business/leasing/criteria-for-capital-lease-356604

    Solution Preview

    a.
    Doherty Company can classify it as a capital lease if any of the four criteria is met,
    1) The lease transfers title to the lessee;
    2) The lease contains a bargain purchase option;
    3) the lease term is 75% of more of useful life and the lease is not first executed within the last 25% of the original useful life.
    4) The present ...

    $2.49

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