Question

17. The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease and (c) would not have been incurred had the lease agreement not occurred are referred to as initial direct costs. Initial direct costs are deferred and expensed over the lease term, generally on a straight-line basis in:

Answer 1

Answer:

a sales-type with selling profit

Explanation:

Initial direct costs are deferred and expensed over the lease term in a sales type lease. A sales type lease is lease that has the present value of lease higher than the carrying value in the books. Therefore the lessor is seen as selling the leased property and should recognize profit since there is a selling profit. The lessor and lease account differently for sales type lease, the lessor based on classification of sales type lease expenses(at least at comencement) it while the leassee capitalizes right if use and amortizes payments over lease term