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Statement of a problem № 10497

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On January 1, 2017, Von Company entered into two non cancelable 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 percent of the estimated economic life of the machine. The second lease contains a bargain purchase option; the lease term is equal to 50 percent of the estimated economic life of the machine. Required: a. What is 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. b. How should a lessee account for a capital lease at its inception? c. How should a lessee record each minimum lease payment for a capital lease? d. How should Von classify each of the two leases? Why?




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