If the lease term is equal to 75% or more of the estimated economic life of the leased property, the asset should be capitalized by the lessee. The one exception to this rule is when the
A) lease term is for 5 years or less.
B) lessee does not intend to exercise its option to purchase the asset at the conclusion of the lease term.
C) lessor refuses to offer a bargain purchase option and the leased property will revert to the lessor at the end of the lease term.
D) inception of the lease occurs during the last 25% of the life of the asset.

Question

Quizplus · Accepted Answer

The exception to the rule of capitalizing a leased asset when the lease term is equal to 75% or more of the estimated economic life of the leased property is when the inception of the lease occurs during the last 25% of the life of the asset. This is because the asset's value and utility are significantly diminished by that point, making the capitalization less relevant.

If the Lease Term Is Equal to 75% or More