Asked by
Verified
A lease will be treated as a direct financing lease by the lessor when
A) the lessor is a financial institution
B) the interest revenue element is determined in such a manner as to produce a constant periodic rate of return on the net investment of the lease
C) at least one of the four basic criteria is met, collectibility of the minimum lease payments is reasonably assured, no uncertainties surround the amount of the unreimbursable costs, and the lessor does not have a dealer profit or loss
D) the lease agreement contains a provision for unguaranteed residual value
Direct Financing Lease
A lease agreement where the lessor purchases the leased asset specifically for the lease and all financial risks and rewards are transferred to the lessee.
Periodic Rate of Return
The rate at which an investment grows during each accounting period, often utilized to compare the profitability or yield of different investments over a set time frame.
Net Investment
The total amount spent on purchasing fixed assets less any disposals, also considering adjustments for depreciation or impairments.
- Identify the criteria that categorize leases as operating, direct financing, or sales-type leases.
Verified Answer
Learning Objectives
- Identify the criteria that categorize leases as operating, direct financing, or sales-type leases.
Related questions
A Direct Financing Lease Differs from a Sales-Type Lease in ...
One of the Distinguishing Characteristics of a Direct Financing Lease ...
Which Statement Is Not True? a Leveraged Lease Always ...
Which of the Following Indicators Relating to Lease Capitalization Is ...
Which of the Following Correctly States a Lease Capitalization Criterion ...