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:
1) What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
2) What criteria must be met by the lease meet in order that Lambert Company classify it as a sales-type or direct financing lease?
3) Contrast a sales-type lease with a direct financing lease.