Which of the following lease conditions would result in a long-term lease to the lessee?

Question

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A long-term lease, in accounting terms, is often defined by certain criteria that indicate the lessee has obtained control or significant benefits of ownership over the leased asset. Based on the options provided, let's evaluate which condition would result in a long-term lease:
a. The lessee will return the property to the lessor at the end of the lease term.
- This condition is typical of many leases and does not necessarily indicate a long-term lease. It simply states the lessee's obligation to return the asset at the end of the lease period.
b. The lessee can purchase the property for $1 at the end of the lease term.
- This condition suggests that the lease includes a bargain purchase option. A bargain purchase option allows the lessee to buy the leased asset at the end of the lease term for a price significantly lower than the expected fair market value. This condition often indicates a capital lease or a finance lease under accounting standards, which is considered a long-term lease because it effectively transfers the benefits and risks of ownership to the lessee.
c. The fair market value of the property at the inception of the lease is $20,000; the present value of the lease payments is $17,600.
- This condition provides information about the value of the property and the present value of the lease payments but does not, by itself, indicate whether the lease is long-term. The present value being less than the fair market value does not necessarily mean the lease is long-term.
d. The lease term is 70% of the property's economic life.
- This condition suggests that the lease term is a substantial portion of the asset's economic life. Under many accounting frameworks, if the lease term covers a major part of the remaining economic life of the asset (usually 75% or more), it is considered a finance lease or capital lease, which is treated as a long-term lease.
Based on the information provided, the condition that would most clearly result in a long-term lease to the lessee is:
b. The lessee can purchase the property for $1 at the end of the lease term.
This condition implies that the lessee has a significant economic incentive to purchase the asset at the end of the lease, which is a strong indicator of a finance lease or capital lease, where the lessee effectively gains the benefits of ownership.

Which of the Following Lease Conditions Would Result in a Long-Term