A lessee is attempting to circumvent the accounting rules, which require lease capitalization.Which of the following is most likely to lead to classification of a lease as an operating lease for the lessee?
A)increase the term of the lease.decrease annual executory costs
B)attempt to reduce the lessee's borrowing rate
C)contract provides for a third-party guarantee of residual value
D)contract provides that lessee pays executory costs

Question

Quizplus · Accepted Answer

A third-party guarantee of residual value is more likely to lead to classification of a lease as an operating lease because it reduces the risk to the lessor that the asset will not be worth the expected residual value at the end of the lease term, making it less necessary to capitalize the lease to reflect ownership-like risks and benefits on the lessee's balance sheet.

A Lessee Is Attempting to Circumvent the Accounting Rules, Which