For Accounting Purposes, Which of the Following Conditions Would Not

question 39

Multiple Choice

For accounting purposes, which of the following conditions would not automatically cause a lease to be a financial lease?

• A) The lessee can purchase the asset for its 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 PV of the lease payments is more than 90% of the asset's market value at lease inception.

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Definitions:

Privity of Contract

The rule that only the individuals or entities who are parties to a contract can have rights or duties imposed by the contract itself.

Statutory Assignment

The transfer of rights or benefits from one party to another in accordance with specific statutes or laws.

Equitable Assignment

The transfer of rights or benefits from one party to another, recognized by equity and intended to be binding, often used in absence of formal legal assignment.

Novation

A legal process where a new contract replaces an existing one, transferring rights and obligations from the original party to a new one.