In a finance lease, the amount capitalized is the
A) sum of the lease payments over the life of the lease.
B) fair value of the leased asset on the date the lease is signed.
C) present value of the lease payments.
D) future value of the asset as of the lease termination date.

Question

Quizplus · Accepted Answer

The amount capitalized in a finance lease is the present value of the lease payments. This is because in a finance lease, the lessee is effectively purchasing the asset through a series of lease payments, so the present value of those payments represents the cost of the asset. The fair value of the leased asset or the future value of the asset at the end of the lease term may be used to determine the lease payments, but they are not the amount capitalized in the lease.

In a Finance Lease, the Amount Capitalized Is the