Question

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: Multiple Choice A sales-type lease with a selling profit. A sales-type lease without a selling profit. Any sales-type lease. An operating lease.

Answer 1

Answer: A sales-type lease without a selling profit.

Explanation: A sales-type lease without a selling profit is a type of lease where the initial direct costs are deferred and expensed over the lease term.

The expenses to be deferred and expensed includes:

1. costs associated directly with consummating a lease

2. costs essential to acquire the lease

3. costs that would not have been incurred had the lease agreement not occurred.

These can be achieved by not recording the prepaid expenses in the books separately but calculated with the lease receivable.