Which of the following would indicate that the lessee should not classify a lease as a capital lease?
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

A lease should be classified as a capital lease if it meets one of the four criteria outlined in GAAP. One of these criteria is that the lease term is equal to or greater than 75% of the asset's useful life. In this case, the lease is for only 4 years and the asset has a useful life of 20 years, so it does not meet this criterion and should not be classified as a capital lease. The other options (A, B, and C) are not relevant to the lease classification criteria.

Which of the Following Would Indicate That the Lessee Should