Trussel Creations leased kitchen equipment under a five-year lease with an option to renew for three years at the end of five years and an option to renew for an additional three years at the end of eight years. The first three-year renewal option can be exercised for one-half the original and usual rate. What is the length of the lease term that Trussel Creations should assume in recording the transactions related to the lease?

Question

Quizplus · Accepted Answer

The lease term will be 8 years. The lease term is the contractual lease term modified by any renewal or termination options for which the option is reasonably certain to be exercised. The first three-year renewal option can be exercised for one-half the original and usual rate, which implies a reasonable certainty that he original lease term will be extended to 8 years.

Trussel Creations Leased Kitchen Equipment Under a Five-Year Lease with an Option