General Tools is seeking ways to maintain and improve cash balances. As company controller, you have proposed the sale and leaseback of much of the company's equipment. As seller-lessee, General Tools would retain the right to essentially all of the remaining use of the equipment. The term of the lease would be six years. A gain would result on the sale portion of the transaction. The lease portion would be classified appropriately as a capital lease.

1. How should the sale portion of the sale-leaseback transaction be accounted for at the lease's inception?

2. How should the gain on the sale portion of the sale-leaseback transaction be accounted for during the lease?

3. How should the leaseback portion of the sale-leaseback transaction be accounted for at the lease's inception?

4. What is conceptual basis for capitalizing certain long-term leases?