Question

In: Accounting

Which of the following is not among the criteria for classifying a lease as a finance...

Which of the following is not among the criteria for classifying a lease as a finance lease?

- The agreement specifies the ownership of the asset transfers to the Lesee

- The agreement contains an option to purchase the underlying asset that the lessee is reasonably certain to exercise

- The lease term is for substantially all of the remaining economic life the underlying assets

Or

- The present value of the sum of the lease payments and any residual value guaranteed by the Leisy that isn’t already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset

Solutions

Expert Solution

- The agreement specifies the ownership of the asset transfers to the Lesee

These are criteria of a lease

a. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

b. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
c. The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease.
d. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
e. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term


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