One of the distinguishing characteristics of a direct financing lease is that
A)the lessor is normally a dealer or manufacturer
B)the net investment in the lease is equal to the cost of the asset or carrying value of the asset
C)the lease has two sources of earnings: interest revenue and profit or loss from the asset exchange
D)the property related to the lease remains on the lessor's balance sheet during the term of the lease

Question

Quizplus · Accepted Answer

In a direct financing lease, the net investment in the lease (the present value of lease payments plus any unguaranteed residual value) is equal to the cost of the asset or carrying value of the asset. This means that the lessor earns an implicit interest rate over the term of the lease, rather than a profit or loss from the asset exchange. The lessor may be a dealer, manufacturer, or other type of lessor, and the property related to the lease remains on the lessor's balance sheet during the term of the lease.

One of the Distinguishing Characteristics of a Direct Financing Lease