Chapter 14, Problem 17E

To determine

Criteria for Capital lease:

In order to be classified as a capital lease, a leased asset must meet one of the following criteria:

1. Transfer of ownership from lessor to lessee.

2. Purchase of lease asset with minimum payment of $1.

3. The lease term is more than the 75% or more of the useful life of the asset.

4. Present value of the lease payments is equal or more than 90% of fair market value of the asset.

To determine:

Determine whether the company in each separate case 1 through 3 has entered into an operating lease or a capital lease.