Use the Table for the Question(s) Below

question 33

Multiple Choice

Use the table for the question(s) below.
Luther Industries currently has the following balance sheet (in Thousands of dollars) :
Luther is about to add a new fleet of delivery trucks. The price of the fleet is $1.5 million.
-Suppose the lease is a five-year fair market value lease, and the trucks have a remaining useful life of 8 years. If the monthly lease payments are $25,000 and the appropriate discount rate is 6% APR with monthly compounding, will the lease be classified as an operating lease or a capital lease for the lessee?

• A) Capital lease, because the title to the property transfers to the lessee at the end of the lease term.
• B) Capital lease, because the present value of the minimum lease payments at the start of the lease is 90% or more of the asset's fair value.
• C) Operating lease, because the present value of the minimum lease payments at the start of the lease is less than 90% of the asset's fair value.
• D) Operating lease, because the lease term is more than 75% of the estimated economic life of the asset.

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Definitions:

Small Business Leadership

The guidance and direction provided by individuals in managerial positions within small enterprises to achieve organizational goals.

Being Credible

The quality of being trustworthy or believable, often assessed based on expertise, reliability, and a track record of integrity.

Establishing Vision

The process of creating a clear, inspirational and forward-looking statement that defines the desired long-term future of an organization or team.

Being Authoritative

Exhibiting a confident and forceful presence that commands respect and compliance from others.