We classify a lease as a Type A lease if:
A)the present value of lease payments is less than the asset's book value.
B)the present value of lease payments is less than the asset's fair value.
C)the usual risks and rewards are transferred to the lessee
D)the usual risks and rewards are retained by the lessor.

Question

Quizplus · Accepted Answer

A Type A lease is also known as a finance lease, where the transfer of usual risks and rewards of ownership is transferred to the lessee. This means that the lessee assumes most of the economic benefits and risks related to the asset, and therefore the lease is essentially a purchase of the asset. The present value of lease payments being less than the fair value or book value is not related to the classification of a lease as Type A.

We Classify a Lease as a Type a Lease If