If an asset has a positive salvage of $1,000, exactly equal to UCC, then the lease analysis for an asset alone in its pool will show the following cash flows for that phenomenon.
A)The salvage is a cost to leasing; there is no terminal loss or gain
B)The salvage is a cost of owning, the terminal loss is $1,000
C)Salvage has no effect on leasing, since it belongs to the owner
D)The tax shelter for the terminal gain will be $1,000

Question

Quizplus · Accepted Answer

When an asset has a positive salvage value equal to its UCC, there is no terminal gain or loss for the lease analysis since the asset has already been fully depreciated. The salvage value is a cost to leasing because it reduces the amount of cash flow that can be generated from the lease. The salvage value belongs to the owner and has no effect on the lessee's cash flows. Therefore, the correct choice is A.

If an Asset Has a Positive Salvage of $1,000, Exactly