Which of the following lease conditions would result in a capital lease to the lessee?
A)The lessee will return the property to the lessor at the end of the lease term.
B)The lessee can purchase the property for $1 at the end of the lease term.
C)The fair market value of the property at the inception of the lease is $20,000; the present value of the lease payments is $17,600.
D)The lease term is 70% of the property's economic life.

Question

Quizplus · Accepted Answer

A lease is classified as a capital lease if it meets any of the following criteria: transfer of ownership, bargain purchase option, lease term is 75% or more of the economic life, or present value of lease payments is 90% or more of the fair value. Option B indicates a bargain purchase option, which qualifies it as a capital lease.

Which of the Following Lease Conditions Would Result in a Capital