If the present value of future lease payments equals or exceeds 90% of the fair value of the leased property, the
A) conditions are met for the lease to be considered a finance lease.
B) lease is uneconomical and should not be entered into.
C) lease may be classified as an operating lease.
D) recording of a lease liability is optional-that is, the off-balance sheet approach can be elected.

Question

Quizplus · Accepted Answer

According to accounting standards, if the present value of future lease payments equals or exceeds 90% of the fair value of the leased property, it indicates that the risks and rewards of ownership have been transferred to the lessee. Therefore, the lease should be classified as a finance lease, and the lessee should record a lease liability and an asset on their balance sheet.

If the Present Value of Future Lease Payments Equals or Exceeds