Under the provisions of ASU 2016-02,in the event a lease does not qualify as a sales-type lease by a leaser,which of the following is not a criterion to be met to qualify the lease as a direct financing lease?
A)The present value of the sum of lease payments and any residual value guaranteed by the lessee that is not already reflected in lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset
B)It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee
C)The lease transfers ownership of the underlying asset to the lessee by the end of the lease term
D)All leases that do not qualify as sales type leases for lessor are recorded as direct financing leases.

Question

Quizplus · Accepted Answer

For a lease to qualify as a direct financing lease, the present value of the lease payments and any residual value guaranteed by the lessee should be equal to or greater than substantially all of the fair value of the underlying asset, and it should be probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. However, the lease does not need to transfer ownership of the underlying asset to the lessee by the end of the lease term to qualify as a direct financing lease. Option D is incorrect because some leases may not qualify as either sales-type or direct financing leases.

Under the Provisions of ASU 2016-02,in the Event a Lease