Question

 To capitalize this lease transaction, lessee should 

• Debit a liability account and credit an asset account. 

• Debit an asset account and credit a liability account. 

• Debit a shareholders' equity account and credit an asset account. 

• Debit an asset account and credit a shareholders' equity account.

Answer 1

A capital is a lease agreement that entitles a renter to the use of an asset for temporary purpose.

New accounting standard requires a lessee to capitalize almost all leases in books of account. It results in a recognition of asset and a corresponding liability for lease in the books.

So to capitalize the lease, lessee should

Debit an asset account and credit a liability account.

So the answer is option 2nd i.e. debit an asset account and credit a liability account.