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    Determining if a Lease is Treated as a Capital Lease or Operating Lease

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    1. Please explain in your own words the four criteria used for determining if a lease is to be treated as a capital lease, as opposed to as an operating lease.

    2. Please discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

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    Solution Preview

    Please explain in your own words the four criteria used for determining if a lease is to be treated as a capital lease, as opposed to as an operating lease.

    2. Please discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

    A lease should be treated as a capital lease as long as it meets any of the following four established criteria. The life of the lease is greater than 75% of the life of the asset. However, as set forth by the FASB, if the start of the lease term falls within the last 25% of the total estimated economic life of the asset being leased, this criteria cannot be used as a determining factor for the type of lease. It ...

    Solution Summary

    Please explain in your own words the four criteria used for determining if a lease is to be treated as a capital lease, as opposed to as an operating lease.

    2. Please discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

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