Related to direct financing leases
A)the net investment in the lease should be adjusted each year by material increases (but not decreases)in estimated unguaranteed residual values
B)the lessor only reports interest revenue on the income statement
C)initial direct costs result in an increase in Unearned Interest Revenue-Leases by an amount equal to these costs in the year the costs are incurred
D)the lessor's gross margin is amortized over the life of the lease

Question

Quizplus · Accepted Answer

In a direct financing lease, the lessor recognizes interest revenue over the lease term as it pertains to the net investment in the lease. The lessor does not report gross margin or amortize initial direct costs in the same way as in sales-type leases. Instead, the focus is on the interest income generated from the financial component of the lease.

Related to Direct Financing Leases