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:

Credit To Cash

A transaction in accounting where a credit sale is paid off, converting receivables into cash.

Accounts Payable

Liabilities of a business that represent money owed to suppliers or creditors for goods and services received.

Accounts Payable Subsidiary Ledger

A detailed record used to track amounts owed to suppliers or creditors separate from the general ledger.

General Ledger

A comprehensive ledger that contains all the financial accounts of a business, recording every transaction that occurs.