If a Lessor Borrows Money on a Nonrecourse Basis to Purchase

question 66

Multiple Choice

If a lessor borrows money on a nonrecourse basis to purchase an asset which will be leased to another party, then:

• A) The lessor is responsible for the payments on the borrowed funds whether or not the lessee pays the lease payments.
• B) The lessee is required to send the lease payments directly to the lender of the funds as payment on the loan to the lessor.
• C) The loan is considered paid in full if the lessee discontinues making the lease payments or terminates the lease early.
• D) The lessor is only obligated to make loan payments as long as the lessor is collecting the lease payments.
• E) The lessor must pursue the lessee if the lessee fails to make the agreed upon lease payments.

---

Definitions:

Depreciation

The process of allocating the cost of tangible assets over their useful lives, reflecting the decrease in their value over time.

Intangible Asset

An asset that lacks physical substance but is identifiable and provides economic benefits to the entity, such as patents, trademarks, and copyrights.

Fixed Asset

Long-term tangible property used in the operation of a business and not expected to be consumed or converted into cash in the near term.

Treasury Note

A medium-term government debt security with fixed interest rates and maturities typically between one and ten years.