Salaur Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. The lease is noncancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2012, with the first rental payment due on January 1, 2012. Additional information related to the lease is as follows.

AccountingAnalyze the lease capitalization criteria for this lease for Salaur Company. Prepare the journal entry for Salaur on January 1, 2012.AnalysisBriefly discuss the impact of the accounting for this lease for two common ratios: return on assets and debt to total assets.PrinciplesWhat element of faithful representation (completeness, verifiability, neutrality, free from error) is being addressed when a company like Salaur evaluates lease capitalizationcriteria?

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Yearly rental Lease term Estimated economic life Purchase option Renewal option $3,557.25 3 years 5 years $3,000 at end of 3 years, which approximates fair value 1 year at $1,500; no penalty for nonrenewal; standard renewal clause Fair value at inception of lease Cost of asset to lessor Residual value: $10,000 $10,000 Guaranteed -0- Unguaranteed Lessor's implicit rate (known by the lessee) $3,000 12% Lessor; estimated to be $500 per year (included in rental equipment) Executory costs paid by: Estimated fair value at end of lease $3,000