Wayne Technical Corporation signed a lease for $150,000 for equipment. The equipment has an estimated useful life of 7 years. This lease would be considered to be a capital lease if:
A) the equipment is leased for 4 years.
B) the present value of the lease payments equals $40,000.
C) title to the equipment transfers to Wayne at the end of the lease term.
D) the lease agreement allows Wayne to purchase the truck for $75,000 at the end of the lease.

Question

Quizplus · Accepted Answer

A lease is considered a capital lease if it meets any of the following criteria: transfer of ownership at the end of the lease term, a bargain purchase option, lease term is 75% or more of the asset's useful life, or the present value of lease payments is 90% or more of the asset's fair value. Option C indicates transfer of ownership, meeting one of the criteria for a capital lease.

Wayne Technical Corporation Signed a Lease for $150,000 for Equipment