In computing the present value of the lease payments, the lessee should
A) Use the implicit rate in all cases.
B) Use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee/
C) Use its incremental borrowing rate in all cases.
D) Use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee.

Question

Quizplus · Accepted Answer

The lessee should use the implicit rate of the lessor if it is known, as it reflects the lessor's expected return on the lease. If the implicit rate is not known, the lessee should use its incremental borrowing rate.

In Computing the Present Value of the Lease Payments, the Lessee