For Accounting Purposes, Which of the Following Conditions Would Automatically

question 46

Multiple Choice

For accounting purposes, which of the following conditions would automatically cause a lease to be a capital lease?

• A)The lessee can purchase the asset below fair market value at the end of the lease.
• B)The lease transfers ownership of the asset to the lessee by the end of the lease.
• C)The lease term is more than 75% of the asset's economic life.
• D)The present value of the lease payments is more than 90% of the asset's market value at lease inception.
• E)All of the above would lead to the lease being considered a capital lease.

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Definitions:

Collateral

An asset that a borrower offers to a lender as security for a loan, which can be seized if the borrower fails to repay.

Building Infrastructure

The process of constructing physical and organizational structures and facilities needed for the operation of a society or enterprise.

Physical Capital

Assets used in the production process that are tangible, such as buildings, machinery, and equipment.

Social Overhead Capital

Publicly funded infrastructure that supports economic activity, such as highways, schools, and hospitals.