Operating and Capital Leases

question 51

Essay

Operating and capital leases
Berkeley Corporation wants to expand operations and is considering various leasing arrangements for additional equipment.Berkeley's management has heard the terms capital lease and operating lease mentioned by the accounting department and wants clarification of these terms before signing any lease contracts.
(a)Briefly explain the difference between a capital lease and an operating lease from a lessee's (Berkeley's)point of view.Your answer should include the financial statement impact of each type of lease.
(b)How does a lessee determine whether a specific lease contract is an operating lease or a capital lease? Include at least two of the criteria specified by the FASB in your answer.
(c)Which of the above two types of leases is sometimes

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Definitions:

Intrathecal

Pertaining to the administration of drugs or other substances directly into the space under the arachnoid membrane of the brain or spinal cord.

Intramuscular

Intramuscular describes an injection given directly into the muscle, allowing for the rapid absorption of medication into the bloodstream.

Directions

Instructions or guidance on how to reach a destination, perform a task, or operate something.

Bid

An offer of a specific price for goods or services, especially in the context of auctions or competitive tenders.