Bertolino Entity has a lease for which the present value of the minimum lease payments is greater than the fair value of the leased asset. The lease is cancelable and is six years long. This lease should be capitalized as a finance lease.

Question

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The lease should not automatically be capitalized as a finance lease based solely on the present value of the minimum lease payments being greater than the fair value of the leased asset. Other criteria such as transfer of ownership, lease term, and purchase option must also be considered. Additionally, the fact that the lease is cancelable is typically inconsistent with the criteria for a finance lease.

Bertolino Entity Has a Lease for Which the Present Value