Which of the Following Facts Would Require a Lessee to Classify

question 14

Multiple Choice

Which of the following facts would require a lessee to classify a lease as a capital lease?

• A)The lease term is 85% of the estimated economic life of the leased property.
• B)The present value of the minimum lease payments is 85% of the fair market value of the leased property to the lessor, less any investment tax credit accruing to the lessor.
• C)The lease contains a purchase option.
• D)The lease does not transfer ownership of the leased property.

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Definitions:

Transfer Price

The price at which divisions of a company transact with each other, such as the sale of goods or services, often used for internal accounting.

Upstream Division

A segment within a company that focuses on the initial stages of production or the supply chain, such as raw materials acquisition.

Downstream Division

The section of a company involved with the processing, marketing, and sale of products derived from raw materials.

Profit Centers

Segments within a business that are directly responsible for generating profits through their activities and performance.