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| Connor Corporation signed a lease on January 1, year 1, to rent equipment for 10 years. The lease was appropriately treated as a capital lease. On January 1, year 4 Connor renegotiated the lease terms. The new lease agreement does not contain a bargain purchase option, nor transfer of title. The new lease terms are for a shorter length of time, which is not greater than 75% of the economic useful life of the asset. The present value of the minimum lease payments under the new agreement is less than 90% of the fair market value of the leased asset. How should Connor account for the change in the lease agreement? A. Remove the leased asset from the books and treat the lease as an operating lease. B. Treat the new lease as a sales-leaseback. C. Make no change until the end of the lease term at which time a gain or loss will be recognized for the reduction in payments. D. Reduce the leased asset account by the gross value in the reduction of payments. |