What is the ethical issue-reporting a lease as capital lease
Course:- Accounting Basics
Reference No.:- EM131134225

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Primary Task Response:

Within the Discussion Board area, write 400-600 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas:

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.

What is the ethical issue?

What should you, the controller, do?

What are the generally accepted accounting principles (GAAP) for reporting a lease as a capital lease?

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