How Does the Accounting Prescribed in SFAS No

question 39

Essay

How does the accounting prescribed in SFAS No. 13 seek to make a capital lease resemble a purchase by the lessee of an asset with debt financing?

---

Definitions:

Efficient Market Theory

A hypothesis stating that financial markets fully incorporate all available information into asset prices at all times.

Interest Rate

The annual percentage rate applied to the outstanding amount of a loan, representing the charge borrowers pay for interest.

Fundamental Value

The intrinsic worth of an asset, determined by its cash flows, dividends, and growth prospects, rather than current market conditions.

Adverse Selection

A term describing a situation where due to asymmetric information between buyers and sellers, the party with more information (often the seller) takes advantage of the other, leading to a market with higher risks and lower quality products.