Which one of the following would cause a lease to be accounted for as a capital lease?
A)The lease payments are greater than $10,000 per month.
B)The leased property is located on premises owned by the lessee.
C)The lease term is more than 75% of economic life of the property.
D)The value of the leased property is greater than 10% of the net assets of the lessee.

Question

Quizplus · Accepted Answer

A lease is accounted for as a capital lease if it meets any one of the four criteria:
1. The lease transfers ownership of the property to the lessee by the end of the lease term.
2. The lease contains a bargain purchase option.
3. The lease term is more than 75% of the estimated economic life of the property.
4. The present value of the minimum lease payments is greater than or equal to 90% of the fair value of the leased property. 
Out of these four criteria, option C states that the lease term is more than 75% of the estimated economic life of the property, which would cause the lease to be accounted for as a capital lease.

Which One of the Following Would Cause a Lease to Be