For accounting purposes, which of the following conditions would not automatically cause a lease to be a financial lease?
A) The lessee can purchase the asset for its fair market value at the end of the lease.
B) The lease transfers ownership of the asset to the lessee by the end of the lease.
C) The lease term is more than 75% of the asset's economic life.
D) The PV of the lease payments is more than 90% of the asset's market value at lease inception.

Question

Quizplus · Accepted Answer

Option A does not automatically cause a lease to be classified as a financial lease because the option to purchase the asset at fair market value at the end of the lease term does not necessarily imply that the lessee will assume the risks and rewards of ownership during the lease term.

For Accounting Purposes, Which of the Following Conditions Would Not