If the present value of the lease payments is 90% or more of the market value of the leased asset, the:
A) lease is not cost-effective and should be cancelled.
B) lease may be classified as an operating lease.
C) one of the criteria is met for the lease to be considered a capital lease.
D) lease may be recorded off-balance sheet.

Question

Quizplus · Accepted Answer

When the present value of the lease payments is 90% or more of the market value of the leased asset, one of the criteria for the lease to be considered a capital lease is met. This means that the lessee would record the leased asset and corresponding lease liabilities on their balance sheet rather than off-balance sheet. The lease may still be cost-effective or classified as an operating lease depending on other criteria.

If the Present Value of the Lease Payments Is 90