Which of the following facts would preclude a lessor from classifying a lease as a sales-type or direct financing lease?
A)The undiscounted sum of the minimum lease payments is 90% of the fair value of the leased property to the lessor.
B)The collectibility of the minimum lease payments is reasonably assured.
C)The lease term is 75% of the estimated economic life of the leased property.
D)No important uncertainties exist about unreimbursable costs yet to be incurred by the lessor.

Question

Quizplus · Accepted Answer

For a lessor to classify a lease as a sales-type or direct financing lease, the lease must meet certain criteria. One criterion is that the present value of the lease payments must be substantially all (typically at least 90%) of the fair value of the leased asset. However, this criterion refers to the present value (discounted sum), not the undiscounted sum as mentioned in option A. Therefore, the fact that the undiscounted sum of the minimum lease payments is 90% of the fair value does not meet the criteria for classification as a sales-type or direct financing lease, precluding such classification.

Which of the Following Facts Would Preclude a Lessor from Classifying