A Lease Will Be Treated as a Nontax Lease If

question 16

Multiple Choice

A lease will be treated as a nontax lease if it satisfies any of the following conditions EXCEPT:

• A) The property may be acquired at the fair market value of the asset at the time when the option may be exercised.
• B) Some portion of the lease payments is specifically designated as interest or its equivalent.
• C) The lessee receives ownership of the asset on completion of all lease payments.
• D) The total amount that the lessee is required to pay for a relatively short period of use constitutes an inordinately large proportion of the total value of the asset.

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Definitions:

Expected Rates Of Return

Expected rates of return refer to the anticipated profit or loss from an investment, often based on historical data and analysis of future potentials.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed on an annual basis.

Inflation Rate

The percentage increase in the price level of goods and services in an economy over a period of time, typically measured annually.

Profits

The financial gains obtained when revenue from business activities exceeds expenses, costs, and taxes.