Question

Which one of the following statements is correct? A) The lessor is primarily concerned with returning the asset at the end of the lease term without incurring any additional charges. B) The lessor is primarily concerned about the use of the asset. C) If a computer manufacturer leased computers it built to others, it would be engaging in leveraged leasing. D) A firm should always purchase, rather than lease, any asset that has a projected positive salvage value at the end of the relevant period of use. E) Lessors provide a source of financing for lessees.

Answer 1

Answer: E) Lessors provide a source of financing for lessees.

Explanation:

A Lease is a form of financing because in financing, an entity provides funding in the form of assets whether cash or otherwise to another entity to allow them use to operate their business. The entity that was provided with funding will then pay a periodic payment as a way to pay off the funding.

This is what happens in leases. The Lessor is the owner of the asset and they lease it to the Lessee who then uses it and pays a periodic amount to the Lessor for using the asset.