Unformatted text preview: Here, Ancient National Bank’s lease agreement will meet the criteria for a capital lease because it contains a bargain purchase option. Unless the fair value of the building is larger than its $2,400,000 cost, the present value of the lease payments most likely goes over 90% of the fair value of the building. So the lessee should capitalize the leased asset and the related obligation in the balance sheet at the correct discounted amount of the future rental payments under this lease agreement. The income statement should contain a charge, plus an interest charge for depreciation of the leased asset. Also the lessee must disclose a few things like the gross amount of the leased asset and the accumulated depreciation, a general description of the lease arrangement, and the existence of the terms of the purchase option....
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This note was uploaded on 03/01/2012 for the course ACC all taught by Professor All during the Spring '12 term at University of Phoenix.
- Spring '12
- Balance Sheet