Salaur Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. The lease is noncancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2012, with the first rental payment due on January 1, 2012. Additional information related to the lease is as follows.
Analyze the lease capitalization criteria for this lease for Salaur Company. Prepare the journal entry for Salaur on January 1, 2012.
Briefly discuss the impact of the accounting for this lease for two common ratios: return on assets and debt to total assets.
What element of faithful representation (completeness, verifiability, neutrality, free from error) is being addressed when a company like Salaur evaluates lease capitalizationcriteria?