Direct financing lease vs sales type

Comparison of Different Types of Accounting by Lessee and Lessor
Subject
Business Finance

Course
Intermediate accounting IIl

Question Description
Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee.

Do not discuss the criteria for distinguishing between capital leases and operating leases.

Answer the following questions in the Discussion Board:

Describe how a capital lease would be accounted for by the lessee both at the inception of the lease and during the first year of the lease, assuming the lease transfers ownership of the property to the lessee by the end of the lease.
Describe how an operating lease would be accounted for by the lessee both at the inception of the lease and during the first year of the lease, assuming equal monthly payments are made by the lessee at the beginning of each month of the lease. Describe the change in accounting, if any, when rental payments are not made on a straight-line basis.
Compare and contrast a sales-type lease with a direct-financing lease as follows.
Lease receivable.
Recognition of interest revenue.
Manufacturer’s or dealer’s profit.

Just do response each # 1 to 3 posted down below only!!

Posted 1

Professor and Class,

A. In a capital lease, the lessee would account for the inception of the lease by debiting the leased equipment and crediting the leased liability. During the first year, they would debit the lease liability and credit cash.

B. In an operating lease, the lessee would account for the inception of the lease y debiting the leased equipment and crediting lease liability. To account for the first payment debit the rent expense and credit the cash.

C. A sales type lease records the lease receivable and the cost of goods sold, whereas the direct financing lease the lessor records a lease receivable instead of a lease asset. In regards to interest revenue, it would be recorded the same way under both lease types. A sales type lease involves manufacturer's or dealer's profit and a direct financing lease does not include that.