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The Presto case in the textbook focuses on ASC 842, Leases. Consider a new lease...

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Accounting

The Presto case in the textbook focuses on ASC 842, Leases. Consider a new lease scenario. Beaker Corp. leases non-specialized equipment from ABC Leasing. The details of the lease follow: On January 1, 2022, Beaker signs a 4-year lease agreement. The lease requires Beaker to make annual payments of $12,300 beginning on the day the lease is signed and on each January 1 thereafter through January 1, 2025. The equipment has a 4-year useful life and fair value of $55,750. Ownership of the equipment reverts back to ABC at lease-end. Using the lessees incremental borrowing rate of 10.0% (lessors implicit rate is not known), the present value of lease payments is $42,888. Collectibility of payments from Beaker is probable.

Which one of the five classification criteria makes this a finance lease to Beaker?

A. None of these

B. PV of lease payment is at least 90% of the fair value

C. Lease term is at least 75% of the useful life

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