Lone Star Company would account for this as:
A)A capital lease.
B)A direct financing lease.
C)A sales type lease.
D)An operating lease.

Question

Quizplus · Accepted Answer

A capital lease is a lease arrangement that transfers substantially all of the risks and rewards of ownership to the lessee and is accounted for as a purchase by the lessee. In this case, Lone Star Company is transferring ownership of the equipment to the lessee after the lease term, and the lease payments cover the cost of the equipment and interest charges. Therefore, it would be accounted for as a capital lease.

Lone Star Company Would Account for This As