Problem: Doherty Company leased equipment from Lambert Company. The classification of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and Lambert.
a) What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
b) What criteria must be met by the lease in order that Lambert Company classify it as a sales-type lease or direct financing lease?
c) Contrast a sales-type lease with a direct financing lease.