Question

T/F A lease that is cancelable cannot be recorded as a capital lease.

Answer 1

A lease that is cancelable can be recorded as a capital lease, according to accounting standards such as ASC 842.

Step-by-step explanation:

A lease that is cancelable can be recorded as a capital lease. The criteria for determining whether a lease is classified as a capital or operating lease is defined by accounting standards such as ASC 842 in the United States. According to these standards, a lease is classified as a capital lease if it meets any one of the following conditions:

1. The lease transfers ownership of the asset to the lessee by the end of the lease term.
2. The lease contains a bargain purchase option, which allows the lessee to purchase the asset at a price significantly lower than its fair market value.
3. The lease term is for 75% or more of the useful life of the asset.
4. The present value of the lease payments amounts to 90% or more of the fair market value of the asset.

Therefore, whether a lease is cancelable or non-cancelable is not a determining factor for classifying it as a capital lease. It is important to consider the specific criteria outlined by the accounting standards to make the appropriate classification.