b) Describe how the definition of finance (previously called capital) leases and operating leases in Topic 842 differs from pre-existing Generally Accepted Accounting Principles (GAAP) for the lessee.

1. a) What is the definition of the FASB’s lease under ASC 842? FASB ASC 842 defines a lease as an "arrangement that conveys the right to control the use of an identified asset for a period of time in exchange for the considerations” (Tango, 2022). This definition provides the right to acquire all the economic benefits and the right to control the use of the asset over the stipulated leasing period. b) Describe how the definition of finance (previously called capital) leases and operating leases in Topic 842 differs from pre-existing Generally Accepted Accounting Principles (GAAP) for the lessee. Topic 842 specifies that the lessee should characterize a lease based on whether the agreement is effectively a purchase of the actual asset. Lease arrangements that transfer the control of the underlying asset to the lessee are defined as finance leases while operating leases. The lessee will have the right to control the use of the underlying asset but not the right to control the asset itself (PWC, 2021). Under the pre-existing GAAP, capital leases affected the balance sheet and were recorded as a liability, while operating leases had no significant impact on the balance sheet figures