Which of the following would indicate that the lessee should not classify a lease as a capital lease under SFAs No.13?
A)The fair value of the leased asset is $100,000 and the present value of the minimum lease payments is $95,000.
B)The lease provides for no unguaranteed salvage value.
C)The lessee has the option to purchase the leased asset in 4 years for $2 when the asset's salvage value is expected to be $20,000.
D)The asset's useful life is 20 years;a 4-year lease occurs when the asset is 26 years old.

Question

Quizplus · Accepted Answer

According to SFAS No.13, a lease should be classified as a capital lease if it meets any of the following criteria: (1) transfer of ownership, (2) bargain purchase option, (3) lease term is 75% or more of the asset's useful life, (4) present value of minimum lease payments is 90% or more of the fair value of the leased asset. Option C does not meet the criteria for a bargain purchase option because the price is equal to or greater than the expected salvage value, so it should not affect the classification. Option B and A do not provide enough information to determine whether the lease should be classified as a capital lease. Option D shows that the lease term is only 20% of the asset's useful life, so it should not be classified as a capital lease.

Which of the Following Would Indicate That the Lessee Should