FASB Standard No. 13 establishes requirements for the explicit disclosure of certain types of lease obligations on the firm's balance sheet. To qualify as a capital lease, any of the following elements may be present EXCEPT
A) the lease transfers ownership of the property to the lessee by the end of the lease.
B) the lease contains an option to purchase the property at a "bargain" price.
C) the lease term is less than 75 percent of the economic life of the property.
D) at the beginning of the lease, the present value of the lease payment is equal to 90 percent or more of the fair market value of the leased property less any investment tax credit received by the lessor.

Question

Quizplus · Accepted Answer

The lease term being less than 75 percent of the economic life of the property is the only element that is not required for a lease to qualify as a capital lease. The other three elements (transfer of ownership, option to purchase at a bargain price, present value of lease payments equal to or greater than 90 percent of fair market value) are all necessary for a lease to be considered a capital lease and require disclosure on the firm's balance sheet.