Calvada Productions signs a lease agreement with Lessor, Inc. According to the terms of the lease, ownership of the leased asset will be transferred to Calvada at the end of the lease term for $5,000, which is estimated to be the fair-market value of the asset at that time. This lease should be classified as an operating lease for accounting purposes.

Operating Lease

A lease agreement for the use of an asset without transferring ownership, typically involves short-term leases of equipment or property.

Fair-Market Value

An estimate of the market value of a property or asset, based upon what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.