GAAP requires that some lease agreements be accounted for as purchases.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

GAAP requires that some lease agreements be accounted for as purchases.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.

Quizplus · Accepted Answer

The theoretical justification for accounting for certain leases as purchases under GAAP is that these leases convey most of the benefits of property ownership. This is based on the concept of economic substance, which considers the economic reality of a transaction, rather than just its legal form. In the case of a lease that conveys most of the benefits of property ownership, the lessee is essentially obtaining the use of the asset for a long period of time, making it economically similar to owning the asset. Thus, accounting for these leases as purchases provides a more accurate reflection of the economic reality of the transaction.

GAAP Requires That Some Lease Agreements Be Accounted for as Purchases.The