Final answer:
A lease that transfers the risks and rewards (or control) of the asset to the lessee is classified as a finance lease, involving the assumption of ownership-like risks and benefits without transfer of actual ownership.
Step-by-step explanation:
If the lease transfers the risks and rewards (or control) of the asset to the lessee, the lease is classified as a finance lease. A finance lease means that the lessee has control over the asset, assumes the risks, and enjoys the rewards associated with the ownership of the asset, without actually owning it.
This is opposed to an operating lease where the lessor retains the risks and rewards of ownership. The classification of a lease as either finance or operating has important implications for financial reporting and tax purposes.