Leasing Agreements


ABC company enters into a lease agreement with XYZ corporation for laser tech machines. The lease agreement qualifies as an operating lease. However, there is one thing that stands out. There is a bargain-purchase option. After the 3-year lease term, each laser tech machine can be purchased for $500, even though the market value is $850.You are the controller of ABC company. You feel that the machine should be recorded as a capital lease because of the bargain-purchase option. Your manager, Martha, feels that at the end of the 3-year term, the laser tech will not be worth $500 because of rapid advances in technology.

  1. What is the ethical issue?
  2. What should you , the controller, do?
  3. What are the generally accepted accounting principles (GAAP) for reporting a lease as a capital lease?

Must be 500-600 words in APA format!

Answers

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