When the lessee guarantees the residual value at the end of the lease term, the:
A)lessor will use this amount in computing periodic depreciation expense.
B)lessee may have to pay the lessor additional cash if the actual residual value is not equal to the estimated residual value.
C)lessee will have to pay the lessor additional cash because the guaranteed residual value was included in computing the annual rental amounts.
D)lessor will receive an additional cash flow at the end of the lease term.

Question

Quizplus · Accepted Answer

When the lessee guarantees the residual value at the end of the lease term, it means that if the actual residual value of the leased asset is less than the guaranteed amount, the lessee may have to pay the difference to the lessor. This does not necessarily affect how the lessor computes depreciation or imply additional cash flow at the end of the term beyond the guaranteed amount.

When the Lessee Guarantees the Residual Value at the End