In a Financial Lease, the Lessor Must Receive More Than

question 21

True/False

In a financial lease, the lessor must receive more than the asset's purchase price in order to earn its required return. However, in an operating lease, the total payments made by the lessee to the lessor are generally less than the lessor's initial cost of the leased asset.

---

Definitions:

Absorption Costing

A costing approach that integrates both direct and indirect costs associated with manufacturing into the product's total cost.

Ending Inventory

The value of the goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Variable Costing

A costing method where only variable costs are considered when determining the cost of goods sold, excluding fixed overhead.

Operating Income

The profit produced from a company's regular business operations, excluding non-operating income and expenses like interest and taxes.