FASB defines capital lease as leases that meet the following:
I. The lease agreement transfers ownership to the lessee before the lease expires. II) The lessee can purchase the asset for a bargain price when lease expires.
III. The lease lasts for at least 75% of the asset's estimated economic life.
IV. The present value of the lease payments is at least 90% of the asset's value.

Question

Quizplus · Accepted Answer

FASB defines a capital lease as a lease that meets all of the four criteria mentioned above, so the correct choice is C. If any one of the criteria is not met, the lease is considered to be an operating lease.

FASB Defines Capital Lease as Leases That Meet the Following