(CMA Adapted, Dec 92 #10) There Are Many Similarities Between

question 7

Multiple Choice

(CMA adapted, Dec 92 #10) There are many similarities between lessee and lessor accounting for the capitalization of leases.Which one of the following is a criterion for the capitalization of a lease by a lessee?

• A)The lease transfers ownership of the property to the lessee by the end of the lease term.
• B)The lease term is at least 90% of the remaining life of the asset at the beginning of the lease.
• C)The present value of the minimum lease payments is 75% or more of the fair market value of the leased asset.
• D)Future costs are reasonably predictable.
• E)The lease term is at least 60% of the remaining life of the asset at the beginning of the lease.

---

Definitions:

Accounts Payable

Liabilities of a firm that are due to be paid to creditors within a short period of time, usually within a year.

Net Income

The total revenue minus total expenses, indicating the profit made by a business over a period.

Net Cash Flow

The difference between cash inflows and outflows from operational, investing, and financing activities during a specific period.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of the corporation's profits.