In general, a lease will be considered a capital lease if it meets any one of the following criteria.

a. The lease transfers ownership of the property to the lessee by the end of the lease term.

b. The lease contains an option to purchase the property at a bargain price.

c. The lease term is equal to 75 percent or more of the estimated economic life of the property.

d. The present value of the rentals and other minimum lease payments is equal to 90 percent or more of the fair value of the leased property.

Explain how you would audit a lease classification as capital or operating on the basis of these criteria. Indicate the specific documentation you would examine and how you would satisfy yourself as to fair value of rentals, estimated economic life, and so forth.