Which one of the following will classify a lease as a capital lease for accounting purposes?
A)The lease transfers ownership of the asset to the lessee by the end of the lease.
B)The lease term is 75 percent or less of the estimated economic life of the asset.
C)The lessee can buy the asset at fair market value at the end of the lease.
D)The initial present value of the lease payments equals or exceeds 80 percent of the fair market value of the asset.
E)The total of the lease payments exceeds $100,000.

Question

Quizplus · Accepted Answer

D  A lease is classified as a capital lease if it meets any of the following criteria: the lease transfers ownership of the asset to the lessee by the end of the lease term (A), or the present value of the lease payments equals or exceeds a substantial portion (typically 90% or more) of the fair market value of the asset, which is similar to option D.

Which One of the Following Will Classify a Lease as a Capital