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Explain the accounting treatment in the lessee books

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Reference no: EM133184171

Question - Caymanas Manufacturing Limited negotiated a lease for a machine on January 1, 2020. The useful life of the machine is estimated at 10 years. The fair value of the machine is $1,800,000. The lease term is 4 years. The annual lease payment is $210,000. The financial year end for Caymanas Manufacturing Limited is December 31, 2020.

Required -

a. Discuss whether this lease should be accounted for as an operating lease or a finance lease in the lessee's books.

b. Explain the accounting treatment in the lessee's books for the year ended December 31, 2020.

Reference no: EM133184171

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