Which of the following is a criterion for a lease to be classified as a capital

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)

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