Question

Which of the following lease criteria would not qualify a lease as a capital lease?

A. The lease contains an option to purchase the leased property at its fair market value
B. The lease term is equal to or greater than 75% of the estimated economic life of the leased property
C. The lease transfers ownership of the property to the lessee by the end of the lease term
D. The present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased property

Answer 1

Answer: C.

Explanation: capital lease is an agreement between the owner of an asset called the lessee and the borrower of the asset called the lessor for an agreed period of time for a consideration called lease rental.

At the end of the lease period the lessor has the option to buy the leased asset if he so wishes.

The lease term must be greater than or equal to 75% of the estimated economic life of the leased asset.