On February 1, 2011, Pearson Corporation became the lessee of equipment under a

Question

On February 1, 2011, Pearson Corporation became the lessee of equipment under a five-year, noncancelable lease. The estimated economic life of the equipment is 8 years. The fair value of the equipment was $600,000. The lease does not meet the definition of a capital lease in terms of a bargain purchase option, transfer of title, or the lease term. However, Pearson must classify this as a capital lease if the present value of the minimum lease payments is at least?

a. $600,000.
b. $540,000.
c. $450,000.
d. $405,000

Explanation / Answer

b. $540,000.

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