Which of the following qualifies as a capital lease?
A)Four-year cancelable lease on a company vehicle.
B)One-year lease on a computer with an option to renew for one more year.
C)Five-year lease on a machine that has a five-year useful life.
D)Monthly lease on office space that can be canceled with 30 days' notice.

Question

Quizplus · Accepted Answer

A capital lease is a lease that meets any one of the following criteria: (i) The lease transfers ownership of the asset to the lessee at the end of the lease term, (ii) The lease contains an option to purchase the asset at a bargain price, (iii) The lease term is equal to or greater than 75% of the useful life of the asset, and (iv) The present value of the lease payments is equal to or greater than 90% of the fair market value of the asset. Option (C) qualifies as a capital lease because the lease term is equal to the useful life of the asset.

Which of the Following Qualifies as a Capital Lease