Which of the following is a criterion for a lease to be classified as a capital
ID: 2574433 • Letter: W
Question
Which of the following is a criterion for a lease to be classified as a capital lease in the books of a lessee? A. The lease contains a bargain purchase option. B. The lease does not transfer ownership of the property to the lessee. C. The present value of the minimum lease payments is 70% or more of the fair market value of the leased property. D. The lease term is equal to 65% or more of the estimated useful life of the leased property. Which of the following is a criterion for a lease to be classified as a capital lease in the books of a lessee? A. The lease contains a bargain purchase option. B. The lease does not transfer ownership of the property to the lessee. C. The present value of the minimum lease payments is 70% or more of the fair market value of the leased property. D. The lease term is equal to 65% or more of the estimated useful life of the leased property.Explanation / Answer
For a lease to be classified as a capital lease in the books of a lessee, the lease contains a bargain purchase option.
According to FAS 13, if the lease contains a bargain purchase option, then it can be classified as a capital lease.
Answer is option (A)