All of the Following Criteria Would Qualify a Lease as a Capital

question 111

Multiple Choice

All of the following criteria would qualify a lease as a capital lease EXCEPT:

• A)the present value of the lease payments equals 70% of the market value of the leased asset.
• B)the lease term is 80% of the asset's estimated useful life.
• C)the lease agreement contains a bargain purchase option.
• D)title to the leased asset transfers to the lessee at the end of the lease term.

---

Definitions:

Operating Leverage

Operating leverage refers to the extent to which a company can increase its operating income by increasing revenue, highlighting the proportion of fixed costs in a company's cost structure.

Capital Intensive

A business process or industry that requires significant financial investment in capital assets like machinery and equipment, versus labor or operational costs.

Fixed Costs

Expenses that do not change with the level of production or business activity.

Variable Costs

Expenses that change in proportion to the production output or sales.