How should the lessee classify these leases?
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Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership ofthe property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Lease A Lease B
a. Capital lease Operating lease
b. Operating lease Capital lease
c. Operating lease Operating lease
d. Capital lease Capital lease
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Solution Summary
The solution first presents the four rules for classifying leases and then applies the rules to answer the question.
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"The Financial Accounting Standards Board has ruled that a lease should be treated as an capital lease if it meets any one of the following four conditions -
(a) if the lease life exceeds 75% of the ...
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