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What should the controller do

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ABC company enters into a lease agreement with XYZ corporation for laser tech machines. The lease agreement qualifies as an operating lease. However, there is one thing that stands out. There is a bargain-purchase option. After the 3-year lease term, each laser tech machine can be purchased for $500, even though the market value is $850.

  • You are the controller of ABC company. You feel that the machine should be recorded as a capital lease because of the bargain-purchase option. Your manager, Martha, feels that at the end of the 3-year term, the laser tech will not be worth $500 because of rapid advances in technology.

Problem 1: What is the ethical issue?

Problem 2: What should you, the controller, do?

Problem 3: What are the generally accepted accounting principles (GAAP) for reporting a lease as a capital lease?

Reference no: EM132815585

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