In a lease contract
A) the owner of the property is called the lessee.
B) the presence of a bargain purchase option indicates that it is a capital lease.
C) the renter of the property is called the lessor.
D) there is always a transfer of ownership at the end of the lease term.

Question

Quizplus · Accepted Answer

The presence of a bargain purchase option is one of the four criteria used to determine if a lease is a capital lease, as outlined in accounting standards (ASC 840). This option allows the lessee to purchase the leased asset for a price significantly lower than its fair value at the end of the lease term, which effectively transfers the risks and rewards of ownership to the lessee. Therefore, a lease with a bargain purchase option would be classified as a capital lease, not an operating lease. The owner of the property is actually called the lessor, while the renter is called the lessee. There may or may not be a transfer of ownership at the end of the lease term, depending on the type of lease. The presence of a bargain purchase option is one of the criteria that determines whether a lease should be classified as a capital lease or operating lease. Option A is incorrect as the owner of the property is called the lessor, not the lessee. Option C is incorrect as the renter of the property is called the lessee. Option D is incorrect as ownership transfer at the end of the lease term is not always a requirement in a lease contract.

In a Lease Contract