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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.

    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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    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 ...