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Under SFAS No. 13, leases that do not meet one of the four criteria for a capital lease are treated as operating leases. The four criteria are:
1- Title to the equipment passes automatically to the lessee by the end of the lease term;
2- The lease contains an option to purchase the equipment at the end of the lease for substantially less than fair market value; sometimes this is a $1 purchase;
3- The term of the lease is greater than 75% of the useful life of the equipment;
4- The present value of the lease payments is greater than 90% of the fair market value of the equipment.
Argue (250-word) against the capitalization of leases that do not meet any of the SFAS No. 13 criteria for a capital lease. Your arguments should take into consideration the matching principle and full disclosure.
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