Chapter 9, Problem 4RQ

To determine

Operating Lease:

This type of lease refers to the lease where the lessor permits the lessee to make use of the asset for a specified time period by charging rent without actual transfer of ownership of the asset which is leased. This type of lease cancellable and is of short term.

Capital Lease:

This type of lease is a situation whereby the lessor (owner) transfers the ownership of leased asset to the lessee (user) on the maturity period of terms of lease. This is non-cancellable in nature and it extends to long term and can also be capitalized.

To explain: The difference between an operating and capital lease.