The Park Company owns 80% of the outstanding common stock of the Sea Company. Park is about to lease a machine with a 5-year life to the Sea Company. The lease would begin January 1, 20X3.

Required:

Explain the adjustments that will be required in the consolidation process if each of the following occurs.

a. The lease is an operating lease.

b. The lease is a direct financing lease with a bargain purchase option.

c. The lease is a sales-type lease with a bargain purchase option