Which of the following criteria would indicate that a lease should be accounted for as a ﬁnance lease?
A) The present value of the minimum lease payments is $93,500, while the fair market value of the leased asset is $100,000.
B) The lease is for real property.
C) The lease asset is guaranteed to revert to the lessor at the end of the lease term.
D) The lease term is for four years, while the asset's useful life is ten years.

Question

Quizplus · Accepted Answer

A finance lease is characterized by the transfer of substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. One of the indicators is if the present value of the minimum lease payments amounts to substantially all (usually 90% or more) of the fair market value of the leased asset. In this case, $93,500 is close to the fair market value of $100,000, indicating a finance lease.

Which of the Following Criteria Would Indicate That a Lease