If title does not pass from the lessor to the lessee under the terms of a lease, ________.
A) the present value of the residual amount will be deducted by the lessor before computing the amount to be recovered through periodic lease payments
B) the present value of the residual amount will be added by the lessor before computing the amount to be recovered through periodic lease payments
C) the lessor will increase the basis of the asset by the residual value
D) the residual value will be ignored

Question

Quizplus · Accepted Answer

The present value of the residual amount will be deducted by the lessor before computing the amount to be recovered through periodic lease payments because the lessor retains ownership and expects to recover the residual value at the end of the lease term.

If Title Does Not Pass from the Lessor to the Lessee