This is a sales-type lease to lessor because:
The present value of the minimum lease payments is bigger than 90% of the fair value of the leased property
The collectibility of the payments is reasonably predictable and lessor's performance is complete.
The fair value of the leased asset is bigger than the book value of the leased asset on lessor's book.
All of the above.
Homework Answers
A lease is considered to be sales-type lease when the following conditions are met:-
- Lease term covers significant part of economic life of asset.
- Asset is to transferred to lessee at the end of lease period.
- Lessee has the option to buy the asset at the end of lease period.
- Present value of lease payments covers substantially all of the fair value of asset.
- Asset on lease is specifically designed for lessee only.
Since the word substantially all of the fair value is more than 90% of the fair value of asset. So option (a) is correct i.e. The present value of the minimum lease payments is bigger than 90% of the fair value of the leased property.
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