A Lease Will Be Treated as a Direct Financing Lease

question 56

Multiple Choice

A lease will be treated as a direct financing lease by the lessor when

• A)the lessor is a financial institution
• B)the interest revenue element is determined in such a manner as to produce a constant periodic rate of return on the net investment of the lease
• C)at least one of the four basic criteria is met, collectibility of the minimum lease payments is reasonably assured, no uncertainties surround the amount of the unreimbursable costs, and the lessor does not have a dealer profit or loss
• D)the lease agreement contains a provision for unguaranteed residual value

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Definitions:

Life Expectancy

The average period a person is expected to live, based on demographic factors such as current age, gender, and health conditions.

Benefit Formula

A method used to calculate the amount of benefits, such as pensions, insurance payouts, or social security, based on factors like income, years of service, or contributions.

Tax Rates

The percentages at which income or value is taxed by governmental authorities, varying by income level, product type, or activity being taxed.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding direct labor and materials.