Kurtain Corp leased a new building and land from Harlow Leasing Inc for 20 years. At the inception of the lease the building and land have fair market values of $150,000 and $20,000, respectively. The building has an expected economic life of 25 years. Which of the following statements is correct regarding Kurtain's treatment of the lease?
a. Kurtain should treat the lease as a capital lease provided that the land and building are recorded in separate asset accounts and accounted for separately.
b. Kurtain should treat the lease as a capital lease only if there is either a bargain purchase option or an automatic transfer of ownership at the termination of the lease.
c. Kurtain should treat the lease as a capital lease even though there is no bargain purchase option and no automatic transfer of ownership at the termination of the lease.
d. Kurtain should treat the lease as a capital lease only if Harlow treats the transaction as a leveraged lease.
C
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