In a Lease That Is Appropriately Recorded as a Direct-Financing

question 18

Multiple Choice

In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income

• A)should be amortized over the period of the lease using the effective interest method.
• B)should be amortized over the period of the lease using the straight-line method.
• C)does not arise.
• D)should be recognized at the lease's expiration.

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Definitions:

Depreciation

The systematic allocation of the cost of a physical asset over its expected useful life.

Merchandise Inventory

Merchandise inventory consists of products that a company intends to sell in the regular course of business.

Building Contractors

Professionals or companies responsible for the construction, repair, or renovation of buildings, overseeing project completion from start to finish.

Monthly Depreciation

The portion of a fixed asset's cost allocated as an expense over a single month, reflecting the asset's usage and loss of value.