Question
Carey Company is considering the acquisition of additional equipment for the business and is analyzing the opportunity to purchase versus lease the equipment. The staff
Carey Company is considering the acquisition of additional equipment for the business and is analyzing the opportunity to purchase versus lease the equipment. The staff at Carey Co. fully understands the accounting for a purchase of equipment but is not familiar with the new rules related to lease accounting (ASC 842). Prepare a memo presenting information to Carey Company specifically addressing the following at a minimum. Responses should be incorporated as a part of the memo discussion rather than as separate answers. -Under what conditions is an exchange regarded as a lease? -How is substantially all risks and rewards of ownership transferred defined? -If Carey Company decides to pursue a lease, how would the lease term affect the transaction? -If Carey Company engages in the lease, the agreement would require that they make up a residual value deficiency at the end of the lease term that is attributable to damage or extraordinary wear and tear. Would this requirement constitute a guarantee of the estimated residual value and be included in the minimum lease payments?
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