Which One of the Following Will Classify a Lease as a Capital

question 19

Multiple Choice

Which one of the following will classify a lease as a capital lease for accounting purposes?

• A)The lease transfers ownership of the asset to the lessee by the end of the lease.
• B)The lease term is 75 percent or less of the estimated economic life of the asset.
• C)The lessee can buy the asset at fair market value at the end of the lease.
• D)The initial present value of the lease payments equals or exceeds 80 percent of the fair market value of the asset.
• E)The total of the lease payments exceeds $100,000.

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Definitions:

Periodic Inventory System

An accounting method where inventory is physically counted and valued at specific intervals, typically at the end of an accounting period.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated before the next period begins.

Merchandise Purchases

Transactions where a business acquires goods to be sold later, often at a profit.

Retained Earnings

Accumulated net income not distributed to shareholders and reinvested in the company.