Decide Whether Each of the Following Lease Agreements Should Be

Essay

Decide whether each of the following lease agreements should be recorded as a capital lease or an operating lease:
a)The present value of the lease payments is 75% of the fair value of the leased asset at the start of the lease.The lease term is for 6 years; the estimated useful life of the leased asset is 10 years.There is a bargain purchase agreement for the lessee to purchase the leased asset at well below fair value at the end of the lease term.
b)The present value of the lease payments is 90% of the fair value of the leased asset at the start of the lease.The lease term is for 2 years; the estimated useful life of the leased asset is 10 years.The leased asset reverts back to the lessor at the end of the lease.
c)The lease transfers ownership of the leased asset to the lessee at the end of the lease.The present value of the lease payments is 75% of the fair value of the leased asset at the start of the lease.The lease term is for 3 years; the estimated useful life of the leased asset is 10 years.
d)The lease agreement doesn't contain a bargain purchase agreement.The leased asset reverts back to the lessor at the end of the lease agreement.The present value of the lease payments is 85% of the fair value of the leased asset at the start of the lease.The lease term is for 10 years; the estimated useful life of the leased asset is 15 years.