Which of the following correctly states a lease capitalization criterion from the point of view of the lessee?

A) Collectibility of the lease payments is reasonably certain.
B) The present value of the minimum lease payments is equal to 75% or more of the fair value of the leased property.
C) The lease contains a bargain purchase option.
D) The lease term is equal to at least 85% of the estimated economic life of the leased asset.

Capital Lease

A type of long-term lease agreement in which the lessee essentially buys an asset and pays for it over the lease term, with the asset's ownership potentially transferring to the lessee at the lease's end.

Bargain Purchase Option

A provision in a leasing contract permitting the lessee to buy the leased item for a price well below the anticipated market value once the lease period concludes.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows, given a specified rate of return, rephrasing the value of future money in today's terms.