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:

Investment Center

A division or unit within an organization that is responsible for its own revenue, expenses, and investments, and is evaluated on its profitability.

Profit Center

A profit center is a segment or area of a business that is responsible for generating its own revenues and hence directly contributes to the company's overall profit.

Indirect Expenses

Costs that are not directly attributable to a specific product or service but are necessary for the operation of a business, such as utilities or rent.

Gross Profit Ratio

Gross profit ratio is a financial metric that represents the proportion of money left over from revenues after accounting for the cost of goods sold.