Which option best describes required disclosures for a capital lease on the lessee's financial statements?

• A. Gross amount of asset and related accumulated depreciation, future minimum lease payments as of the balance sheet date and each succeeding five years, total contingent payments, and the related obligation classified as current and noncurrent
• B. Future minimum lease payments only for the balance sheet date and next five years
• C. Total contingent payments and depreciation only
• D. No disclosures are required

Answer: (A)

When a lease is accounted for as a capital (finance) lease, the lessee must disclose both the asset and the related liability and provide details that show the timing and magnitude of future cash outflows. The best description includes four elements: the gross amount of the leased asset and the related accumulated depreciation so the net book value is clear; a schedule of future minimum lease payments as of the balance sheet date and for each of the next five years, plus totals for payments due after that; any contingent rentals that could affect future payments; and the lease obligation classified as current and noncurrent. This combination gives a complete picture of what is owned, how it is being depreciated, the timing of remaining payments, and how much is due within the next year versus later. Other options omit one or more of these required disclosures, such as not presenting the depreciation impact, the full five-year and beyond payment schedule, contingent payments, or the current/noncurrent classification.