Which one of the following is an indicator that a lease is an operating lease for accounting purposes?
A) The lease transfers ownership of the asset to the lessee by the end of the lease term.
B) The lessee will probably exercise the option to purchase the leased asset.
C) The lease term represents a minor portion of the leased asset's economic life.
D) The residual value plus the present value of the lease payments exceeds the value of the leased asset.
E) The lessor has no use for the asset other than to lease it to the present lessee due to the specialized nature of that asset.

Question

Quizplus · Accepted Answer

An operating lease is one where the lease term represents a minor portion of the leased asset's economic life. In an operating lease, ownership of the asset remains with the lessor and the lessee usually has the option to terminate the lease before the end of the lease term without incurring a significant penalty. Option A is a characteristic of a finance lease, where ownership of the leased asset is transferred to the lessee at the end of the lease term. Option B implies that the lessee intends to purchase the leased asset, which is more indicative of a finance lease. Option D suggests that the lease payments and residual value will exceed the value of the leased asset, which is also more indicative of a finance lease. Option E does not provide enough information to determine if the lease is an operating or finance lease.

Which One of the Following Is an Indicator That a Lease