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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
Which of the following is a reason why lease accounting under GAAP should be reconsidered?
A. It is too easy for firms to circumvent lease capitalization criteria.
B. The SEC has stated that the FASB should reexamine lease accounting.
C. Operating leases are a popular means of off-balance sheet financing.
D. Each of the above are substantiated reasons.
Answer
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