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 risks and benefits of property ownership.

Question

Quizplus · Accepted Answer

GAAP requires that some lease agreements be accounted for as purchases when the lease conveys most of the risks and benefits of property ownership, even if legal title to the property is not transferred. This treatment reflects the economic reality of the transaction, as the lessee essentially owns the property for the duration of the lease. The other choices do not provide a sufficient justification for this accounting treatment.

GAAP Requires That Some Lease Agreements Be Accounted for as Purchases