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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Leases involving only land

Lessee accounting

If the lease agreement transfers ownership or contains a bargain purchase option, the lessee accounts for the lease as a capital lease, and records an asset and related liability equal to the present value of the minimum lease payments. If the lease agreement does not transfer ownership or contain a bargain purchase option, the lessee accounts for the lease as an operating lease.

Lessor accounting

If the lease gives rise to dealer's profit (or loss) and transfers ownership (i.e., title), the lease is classified as a sales‐type lease and accounted for under the provisions of FAS 66 in the same manner as a seller of the same property (profit recognition on real estate sales is discussed in detail in Chapter 10). If the lease transfers ownership, both the collectibility and no material uncertainties criteria are met, but does not give rise to dealer's profit (or loss), the lease is accounted for as a direct financing or leveraged lease as appropriate. If the lease does not transfer ownership, but it contains a bargain purchase option and both the collectibility and no material uncertainties criteria are met, the lease is accounted for as a direct financing, leveraged, or operating lease using the same lessor classification criteria as any other lease. If the lease does not meet the collectibility and/or no material uncertainties criteria, the lease is accounted for as an operating lease.

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