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Response to Client Request I

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Running head: Response to Client Request I 1

Response to Client Request I

Chris Merkel

University of Phoenix

Running head: Response to Client Request I 2

An arrangement that qualifies as a lease is an arrangement that conveys the right to use property, plant, or equipment if the arrangement conveys to the purchaser (lessee) the right to control the use of the underlying property, plant or equipment. The right control the use of the underlying property, plant, or equipment is conveyed if any of the following conditions is met:

A. The purchaser has the ability or right to operate the property, plant, or equipment in a manner it determines while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment.

B. The purchaser has the ability or right to control physical access to the underlying property, plant, or equipment while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment.

C. Facts and circumstances indicate that it is remote that one or more parties other than the purchaser will take more than a minor amount of the output or other utility that will be produced or generated by the property, plant, or equipment during the term of the arrangement, and the price that the purchaser will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of the time of delivery of the output. (ASC 840-10-15-6)

A lease and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception:

a. Transfer of ownership – the lease transfers ownership the lessee by the end of…...

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