Which of the following statements is true about initial direct costs?
A)Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.
B)Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes.
C)Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset.
D)Initial direct costs of a sales-type lease should be expensed as incurred, and an equal amount of the unearned income should be recognized as income in the same period.

Question

Quizplus · Accepted Answer

Initial direct costs of an operating lease for the lessor are often capitalized and amortized over the lease term. These costs are directly attributable to negotiating and arranging the lease, such as commissions, legal fees, and internal costs that are incremental and directly attributable to securing the lease. This approach aligns the expense recognition with the revenue recognition from the lease, rather than expensing these costs immediately.

Which of the Following Statements Is True About Initial Direct