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?
- The economic life of the computers is three years.
- The fair value of the computers on January 1, year 1, is $14,000.
- Frost Co. does not have the option of purchasing the computers at the end of the lease term.
- Ownership of the computers remains with Ananz Co. throughout the lease term and after the lease ends.