To Avoid Leased Asset Capitalization, Companies Can Devise Lease Agreements

question 125

Multiple Choice

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?

• A) Lessee uses a higher interest rate than that used by lessor.
• B) Set the lease term at something less than 75% of the estimated useful life of the property.
• C) Write in a bargain purchase option.
• D) Use a third party to guarantee the asset's residual value.

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Definitions:

FICA

The Federal Insurance Contributions Act; a U.S. law that requires a deduction from paychecks to fund Social Security and Medicare benefits.

OASDI

The Old-Age, Survivors, and Disability Insurance program, part of the U.S. Social Security system, providing benefits to eligible retirees, their families, and the disabled.

Medicare

A federal health insurance program in the United States for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.

Maximum Earnings Limits

The ceiling on the amount of earnings on which certain taxes or contributions, such as Social Security in the United States, are required.