Account for the arrangement as capital lease

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Reference no: EM131266410

On January 1, year 1, Frost Co. entered into a two-year lease agreement with Ananz Co. to lease 10 new computers. The lease term begins on January 1, year 1 and ends on December 31, year 2. The lease agreement requires Frost to pay Ananz two annual lease payments of $8,000. The present value of the minimum lease payments is $13,000. Which of the following circumstances would require Frost to classify and account for the arrangement as a capital lease?

a. Frost does not have the option of purchasing the computers at the end of the lease term.

b. The fair value of the computers on January 1, year 1 is $14,000.

c. The economic life of the computers is three years.

d. Ownership of the computers remains with Ananz throughout the lease term and after the lease ends.

Reference no: EM131266410

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