When the Lessee Guarantees the Residual Value at the End

question 214

Multiple Choice

When the lessee guarantees the residual value at the end of the lease term, the:

• A)lessor will use this amount in computing periodic depreciation expense.
• B)lessee may have to pay the lessor additional cash if the actual residual value is not equal to the estimated residual value.
• C)lessee will have to pay the lessor additional cash because the guaranteed residual value was included in computing the annual rental amounts.
• D)lessor will receive an additional cash flow at the end of the lease term.

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Definitions:

Incentive

A factor, either monetary or non-monetary, that motivates individuals or firms to act in a certain way.

Plant Manager

An individual responsible for overseeing all aspects of operations, including production, staffing, and quality control, within a manufacturing facility.

Fixed Wage

A set amount of compensation paid to employees, consistent across pay periods, regardless of hours worked or performance levels.

Individual Worker

Pertains to a single employee or laborer considered independently within an economic model, focusing on their productivity, wage, or employment conditions.