FASB ASC 842 requires lessors to classify all leases that meet at least one of the five finance lease criteria as sales-type leases. Prior GAAP required lessors to classify those leases that met the capital lease criteria as sales-type leases only if the lessor was a manufacturer or dealer. All other leases that met at least one of the capital lease criteria were to be classified as direct financing leases.
Team 1: Argue in favor of reporting all leases that meet at least one of the finance lease criteria as sales-type leases. Your argument should take into consideration the FASB’s rationale based on revenue recognition and the transfer of control.
Team 2: Argue against changing the lessor reporting requirements for sales-type and direct financing leases. Your argument should take into consideration whether all leases that meet at least one of the finance lease criteria actually do resemble a sale of the asset to the lessee.