A noncancelable lease contains an option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain. The fair value of the asset exceeds the lessor's cost of the asset. Therefore, the lease will be accounted for by the lessor as a(n):
A) Sales-type lease.
B) Financing lease.
C) Operating lease.
D) Guaranteed lease.

Question

Quizplus · Accepted Answer

A noncancelable lease with an option to purchase at a bargain price indicates that the lessee is reasonably certain to exercise the option. Therefore, the lessor effectively transfers most of the risks and rewards of ownership to the lessee, and the lease will be accounted for as a sales-type lease.

A Noncancelable Lease Contains an Option to Purchase a Leased