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Indicate Whether Each of the Following Independent Transactions Is a Capital

Question 110

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Indicate whether each of the following independent transactions is a capital (C) or operating (O) lease.

Premises:
__________ A firm signs a 5-year lease for equipment with a 7-year life.
__________ A firm signs a 16-year lease for equipment with a 20-year life.
__________ A firm signs a lease for property with a fair market value of $20,000. The present value of the lease payments is $16,000.
__________ A firm signs a lease for property with a fair value of $90,000. The present value of the lease payments is $85,000.
__________ A firm signs a lease for equipment which will allow the lessee to purchase the equipment at the end of the lease for one-half the fair market value.
Responses:
capital
operating

Correct Answer:

__________ A firm signs a 5-year lease for equipment with a 7-year life.
__________ A firm signs a 16-year lease for equipment with a 20-year life.
__________ A firm signs a lease for property with a fair market value of $20,000. The present value of the lease payments is $16,000.
__________ A firm signs a lease for property with a fair value of $90,000. The present value of the lease payments is $85,000.
__________ A firm signs a lease for equipment which will allow the lessee to purchase the equipment at the end of the lease for one-half the fair market value.
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