The Effective Interest Method Is Normally Used to Compute the Lessor's

question 105

True/False

The effective interest method is normally used to compute the lessor's finance expense related to a finance lease.

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Definitions:

Implicit Rate Of Interest

The interest rate embedded in a lease agreement, used to calculate the present value of lease payments and to establish the lease classification.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return or discount rate.

Lease Capitalization

The process of recording a lease as an asset and a corresponding liability on the balance sheet, reflecting the company's right to use an asset and obligation to make lease payments.

Implicit Rate Of Return

The discount rate that equates the net present value of an investment's expected cash flows with its initial cost, used in capital budgeting.