Accounting

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Case 13-5 Lease Classifications

Doherty Company leased equipment from Lambert Company. The classification of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and Lambert.

Required:

What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
What criteria must be met by the lease meet in order that Lambert Company classify it as a sales-type or direct financing lease?
Contrast a sales-type lease with a direct financing lease.

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