To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?
A) Lessee uses a higher interest rate than that used by lessor.
B) Set the lease term at something less than 75% of the estimated useful life of the property.
C) Write in a bargain purchase option.
D) Use a third party to guarantee the asset's residual value.

Question

Quizplus · Accepted Answer

A bargain purchase option is actually one of the criteria that would require capitalization of a lease, not avoid it.

To Avoid Leased Asset Capitalization, Companies Can Devise Lease Agreements