In this situation, Reagan:
A)Is the lessee in a sales type lease.
B)Is the lessee in a capital lease.
C)Is the lessor in a capital lease.
D)Is the lessor in a sales type lease.7 year lease term is 75% of 9 year useful life.

Question

In this situation, Reagan:
A)Is the lessee in a sales type lease.
B)Is the lessee in a capital lease.
C)Is the lessor in a capital lease.
D)Is the lessor in a sales type lease.7 year lease term is > 75% of 9 year useful life.

Quizplus · Accepted Answer

Since the lease term of 7 years is greater than 75% of the asset's useful life of 9 years, the lease qualifies as a capital lease. In a capital lease, the lessee is considered to have acquired the leased asset and must recognize it on their balance sheet as if they had purchased it using debt financing. Therefore, Reagan is the lessee in a capital lease.

In This Situation, Reagan