If a lease term is more than 80% of the asset’s life and the leased property is transferred from the lessor to the lessee, then the lease must be capitalized and disclosed on a firm’s balance sheet. Is the preceding statement true or false?

If a lease term is more than 80% of the asset’s life and the leased property is transferred from the lessor to the lessee, then the lease must be capitalized and disclosed on a firm’s balance sheet. Is the preceding statement true or false?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 8MC: At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the...

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Is the preceding statement true or false?

False or True

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Use the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.
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At its inception, the lease term of Lease G is 50% of the estimated remaining economic life of the leased property. In addition, this lease contains a purchase option that is reasonably certain to be exercised by the lessee. The lessee should record the signing of Lease G by recognizing Neither an asset nor a liability Both an asset and a liability An expense An asset but not a liability
One of the determinative criteria for a finance lease specifies that the lease term be equal to or greater than a. 75% of the economic life of the leased asset b. 50% of the economic life of the leased asset c. the economic life of the leased asset d. 90% of the economic life of the leased asset
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