Final answer:
The lessee records a capital lease as an asset and a liability at the present value of the minimum lease payments. This figure is obtained as the lower of the present value of the minimum lease payments or the fair market value of the leased asset.
Step-by-step explanation:
When a lessee records a capital lease, they must recognize it as both an asset and a liability. The correct amount to record on the balance sheet is the present value of the minimum lease payments. According to accounting standards, this amount is calculated as the lower of the present value of the minimum lease payments or the fair market value of the leased asset. This practice ensures that the lease is appropriately reflected on the balance sheet, representing both the value and the obligation it brings to the lessee.
It's important to understand the fundamentals of asset valuation in the context of financial transactions, like how the value of a bank's mortgage loan is measured in the present. This is parallel to how lessees assess their lease commitments. Both situations involve determining the value of future payments in present terms. The primary loan market and secondary loan market serve as references where financial value is established and exchanged.