Which Interest Rate Must Be Used by the Lessee to Account

question 187

Multiple Choice

Which interest rate must be used by the lessee to account for a finance lease under ASPE?

• A)The lessor's implicit rate if known, otherwise the lessee's incremental borrowing rate.
• B)The lower of the lessor's implicit rate AND the lessee's incremental borrowing rate.
• C)The lessee's incremental borrowing rate.
• D)The lessor's implicit rate.

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Definitions:

Payback Period

The duration required for an investment to produce income or cash flows equal to the investment's initial cost.

After-tax Cash Flows

The net cash that remains after all tax-related expenses are deducted, often considered in investment analysis to gauge true profitability.

Liquidation

Liquidation is the process of winding up a company's financial affairs by selling off assets to pay off creditors.

Payback Period

The length of time required to recover the cost of an investment.