CumChan Is a Financial Services Firm

question 55

Multiple Choice

CumChan is a financial services firm.They need computer equipment and have decided to lease the equipment with an operating lease.They want to prevent additional debt from showing up on their balance sheet.Which of the following must be true about their lease for this to work?

• A)The lease term is equal to 65% or more of the economic life of the leased property
• B)The present value of the minimum lease payments is equal to 75% or more of the fair value of the leased property at the inception of the lease
• C)The present value of the minimum lease payments is equal to 90% or more of the fair value of the leased property at the inception of the lease
• D)The lease term is equal to 90% or more of the economic life of the leased property

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Definitions:

Selling Price

The amount of money for which an item is sold, potentially different from listing or cost price due to discounts or negotiations.

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Net Income

The amount of earnings left over after all expenses and taxes have been deducted from total revenue.

Revenue

The total amount of money received by a company for goods sold or services provided during a certain time period.