Problem: Doherty Company leased equipment from Lambert Company. The classification of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and Lambert.
Required to do:
Q1. What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
Q2. What criteria must be met by the lease in order that Lambert Company classify it as a sales-type lease or direct financing lease?
Q3. Contrast a sales-type lease with a direct financing lease.