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The Deluxe Corporation Lease of Asset

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The Deluxe Corporation has just signed a 120-month lease on an asset with a 15-year life. The minimum lease payment s are $2,000 per month ($24,000 per year) and are to be discounted back to the present at an 7 percent annual discount rate. The estimated fair value of the property is $175,000. Should the lease be recorded as a capital lease or an operating lease? Why?

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Solution Summary

This solution determines whether a lease should be recorded as a capital or operating lease given the lease payments, annual discount rae and estimated fair value of property.

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A capital lease must meet at least one of the following criteria:
1. The lease transfers ownership of the property to the lessee by the end of the lease term - This condition is not met.
2. The lease ...

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