Use the Fact Situation in Q3 to Answer the Related

question 63

Multiple Choice

Use the fact situation in Q3 to answer the related question that follows. Using the fact situation above,assume that just after B,the dealer,enters into the lease agreement with A,he assigns the lease to a financing company,which gives notice to A to make all payments to the company until the price has been paid in full,at which time the company will transfer the car to A.In this case,the lease is best described as

• A)a security lease.
• B)a finance lease.
• C)an operating lease.
• D)a hire-purchase agreement.
• E)an agreement of purchase and sale.

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Definitions:

Commercial Substance

A situation where the risk, timing, or amount of the entity's future cash flows changes as a result of a financial transaction.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, where the investment is recorded at original cost and subsequently adjusted to reflect the investor's share of the net assets of the investee.

Carrying Value

The book value of an asset or liability on a company's balance sheet, representing its value according to accounting standards.

Unrealized Gain

A profit that results from an investment that has increased in value but has not yet been sold for cash.