Initial direct costs incurred by a lessor in consummating a sales-type lease are
A) charged to unearned income in the first period of the lease term.
B) charged to cost of sales in the first period of the lease term.
C) deferred and allocated over the lease term in proportion to the recognition of rent revenue.
D) deferred and allocated over the lease term on a straight-line basis.

Question

Quizplus · Accepted Answer

In a sales-type lease, initial direct costs are expensed in the first period as part of the cost of sales, reflecting the immediate recognition of profit or loss on the sale.

Initial Direct Costs Incurred by a Lessor in Consummating a Sales-Type