The Haavelmo Widget Corporation has just signed a 60-month lease on an asset with a six-year life. The lessor will retain the title to the property at the end of the lease, and the present value of the minimum lease payments is $470,000. The estimated fair value of the property is $600,000. Is this an operating lease?

Question

Quizplus · Accepted Answer

The lease is not an operating lease because the present value of the minimum lease payments is 78.33% ($470,000/$600,000) of the fair value, which exceeds the 90% threshold for capital leases.

The Haavelmo Widget Corporation Has Just Signed a 60-Month Lease