What is the primary accounting issue for lessors?
A) Off-balance sheet financing.
B) Revenue recognition and expense allocation over the lease term.
C) Treating the lease in the same manner as the lessee does.
D) Determining whether the lease is a sales-type lease or a direct financing lease.

Question

Quizplus · Accepted Answer

The primary accounting issue for lessors is revenue recognition and expense allocation over the lease term. This is because lessors need to determine how to recognize and allocate lease income and expenses over time, particularly for leases that involve complicated payment structures or options to renew or purchase the leased asset at the end of the lease term. Off-balance sheet financing (choice A) is a concern for both lessees and lessors, but it is not the primary accounting issue for lessors. Treating the lease in the same manner as the lessee does (choice C) is not an accounting issue at all, but rather a question of whether the lessor should follow the same accounting rules as the lessee. Determining whether the lease is a sales-type lease or a direct financing lease (choice D) is one aspect of revenue recognition and expense allocation, but it is not as central to lessors as it is to lessees.

What Is the Primary Accounting Issue for Lessors