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Fouad Mouallem
on Dec 06, 2024

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Which of the following facts would require a lessee to classify a lease as a capital lease?

A) The lease term is 85% of the estimated economic life of the leased property.
B) The present value of the minimum lease payments is 85% of the fair market value of the leased property to the lessor, less any investment tax credit accruing to the lessor.
C) The lease contains a purchase option.
D) The lease does not transfer ownership of the leased property.

Capital Lease

A capital lease is a lease agreement where the lessee receives ownership rights over the asset, for accounting purposes, similar to a purchase financed through a loan.

Economic Life

The duration over which an asset is expected to be economically usable, with its cost being justified by its performance.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, reflecting the time value of money.

  • Ascertain the standards for categorizing leases as capital leases.
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Bradley StewartDec 10, 2024
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