GAAP requires that some lease agreements be accounted for as purchases of assets. The theoretical justification for this treatment is that a lease of this type:
A) Complies with the concept of form over substance.
B) Reflects the relationship of cause and effect.
C) Satisfies the concept of historical cost.
D) Conveys most of the benefits of property ownership.

Question

Quizplus · Accepted Answer

This is because a lease that requires accounting as a purchase of assets typically involves a transfer of most of the benefits and risks of ownership to the lessee, which justifies the accounting treatment as reflecting the economic reality of the transaction.

GAAP Requires That Some Lease Agreements Be Accounted for as Purchases