If the present value of lease payments equals or exceeds 90% of the fair market value of the leased property, the
A) conditions are met for the lease to be considered a capital lease.
B) lease is uneconomical and should not be entered into.
C) lease may be classified as an operating lease.
D) recording of a lease liability is optional-that is, the off-balance sheet approach can be elected.

Question

Quizplus · Accepted Answer

If the present value of lease payments equals or exceeds 90% of the fair market value of the leased property, the conditions are met for the lease to be considered a capital lease. This means that the lessee must record the lease as an asset and liability on their balance sheet.

If the Present Value of Lease Payments Equals or Exceeds