Lease A does not contain a bargin purchase option, but the lease term is equal t

Question

Lease A does not contain a bargin purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property...

24. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? a. b. ?. Lease A Operating lease Operating lease Finance lease Finance lease Lease B Finance lease Operating lease Finance lease Operating lease

Explanation / Answer

option c) Finance lease finance lease

if one of the following criteria is met the lease is classified as capital lease

1)the lease transfers ownership of the property to the lessee by the end of lease term,

2)lease contains bargain purchase option

3)the lease term is equal to 75% or more of the economic estimated life of the leased property

4)the present value at the beginning of the lease term of the min lease payments equals or exceeds of the fair value of the leased property to the lesser at the inception of the lease

since criteria 3 is met in both the cases the lease will be defined as capital lease

option c) Finance lease finance lease

if one of the following criteria is met the lease is classified as capital lease

1)the lease transfers ownership of the property to the lessee by the end of lease term,

2)lease contains bargain purchase option

3)the lease term is equal to 75% or more of the economic estimated life of the leased property

4)the present value at the beginning of the lease term of the min lease payments equals or exceeds of the fair value of the leased property to the lesser at the inception of the lease

since criteria 3 is met in both the cases the lease will be defined as capital lease

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