unit 9 | liabilitites & equity

Question 1

liabilities criteria

Answer 1

1. there is a duty/responsibility to others that requires settlement in the future, through the transfer or use of assets, provision of services, or some other provision of economic benefit, at a specific or determinable date, on occurrence of a specified event, or on demand
2. the entity has little or no discretion to avoid the duty of settling the obligation
3. the transaction or event that results in the obligation has already occurred

Question 2

capital lease criteria (meet any)

Answer 2

1. at the end of the lease term, the ownership of the asset is transferred to the lesse
2. per the lease contract, the lesse has the option to purchase the asset for an amount LESS than its fair market value throughout the lease term
3. the lease term spans 75% or more of the asset’s expected useful life
4. the present value of the lease payment is 90% or more of the fair market value of the leased asset when the contract is signed