Daniel Hardware Co. is considering alternative financing arrangements for equipment used in its warehouses. Besides purchasing the equipment outright, Daniel is also considering a lease. Accounting for the outright purchase is fairly straightforward, but because Daniel has not used equipment leases in the past, the accounting staff is less informed about the specific accounting rules for leases. The staff is aware of some general lease rules related to “right-of-use,” but they are unsure how the accounting rules apply to their situation. Daniel has asked you to conduct some research on these items related to lease capitalization criteria.

Instructions

If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.

a. What is included is the measurement of (1) the lease liability and (2) the right-of-use asset?

b. Besides the non-cancelable term of the lease, what other considerations determine the “lease term”?

c. When should a lessee account for a lease modification? What procedures are followed?