Question: On January 1 2010 Von Company entered into two noncancelable

On January 1, 2010, Von Company entered into two noncancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option. The lease term is equal to 80% of the estimated economic life of the machine. The second lease contains a bargain purchase option. The lease term is equal to 50% of the estimated economic life of the machine.

Required
1. Explain the theoretical basis for requiring lessees to capitalize certain long-term leases. Do not discuss the specific criteria for classifying a lease as a capital lease.
2. Explain how a lessee should account for a capital lease at its inception.
3. Explain how a lessee should record each minimum lease payment for a capital lease.
4. Explain how Von should classify each of the two leases.


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  • CreatedDecember 09, 2013
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