Leases

Question 1

At least one of the following criteria must be present for a lease to be capitalized:

Answer 1

1) OWNERSHIP TRANSFERS AT THE END OF THE LEASE

2) WRITTEN PURCHASE OPTION THE LESSEE IS REASONABLY CERTAIN TO EXERCISE

3) PV OF MINIMUM LEASE PAYMENTS = FV OF ASSETS (CIRCA 90% OF FV OF LEASED PROPERTY)

4) LEASE TERM = MAJOR PART (75%) OF THE ASSETS USEFUL LIFE

5) ASSETS IS SPECIALIZED SUCH THAT IT HAS NOT ALTERNATIVE USE TO THE LESSOR.