Calvada Productions signs a lease agreement with Lessor, Inc. According to the terms of the lease, ownership of the leased asset will be transferred to Calvada at the end of the lease term for $5,000, which is estimated to be the fair-market value of the asset at that time. This lease should be classified as an operating lease for accounting purposes.

Question

Quizplus · Accepted Answer

This lease should be classified as a finance lease (or capital lease under older standards) for accounting purposes because it includes a transfer of ownership at the end of the lease term, which is one of the criteria for a lease to be classified as a finance lease.

Calvada Productions Signs a Lease Agreement with Lessor, Inc