If the Present Value of Future Lease Payments Equals or Exceeds

question 22

Multiple Choice

If the present value of future lease payments equals or exceeds 90% of the fair value of the leased property, the

• A) conditions are met for the lease to be considered a finance lease.
• B) lease is uneconomical and should not be entered into.
• C) lease may be classified as an operating lease.
• D) recording of a lease liability is optional-that is, the off-balance sheet approach can be elected.

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Definitions:

Tax-free Amount

An amount or income received that is not subject to income tax by the taxpayer.

Qualified Pension Plan

A retirement plan that meets the requirements of the Internal Revenue Code, offering tax benefits to the entity that establishes the plan and its participants.

Simplified Method

A way to calculate tax deductions or credits that reduces complexity, often used for retirement distribution calculations or home office deductions.

Taxable Income

The amount of income used to determine how much tax an individual or a corporation must pay to the government in a given tax year.