Under FASB Standard No. 13, which of the following element should be present to qualify as a capital lease?
A) The lease does not transfer ownership of the property to the lessee by the end of the lease.
B) The lease contains an option to purchase the property at a "bargain" price.
C) The lease term is less than 50 percent of the economic life of the property.
D) At the beginning of the lease, the present value of the lease payment is equal to 50 percent or more of the fair market value of the leased property less any investment tax credit received by the lessor.

Question

Quizplus · Accepted Answer

Under FASB Standard No. 13, one of the criteria for a lease to be classified as a capital lease is that it contains a bargain purchase option, which allows the lessee to purchase the leased asset at a price significantly lower than its expected fair market value at the date the option becomes exercisable.