If the Lessee and Lessor Use Different Interest Rates to Account

question 222

Multiple Choice

If the lessee and lessor use different interest rates to account for a finance/sales-type lease, then:

• A) The lessee is unaware of the lessor's implicit rate.
• B) Total expenses for the lessee will equal the lessor's total revenues.
• C) GAAP has been violated by at least one party.
• D) The lessee will report more net income for the year.

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Definitions:

Capitalized Cost

The total of all costs incurred to acquire an asset and prepare it for its intended use, often including the purchase price and costs of installation.

Freight

The transport of goods and cargo by land, air, or sea, often involving the payment of a fee for such service.

Pavement Assessment

The process of evaluating the condition and performance of road surfaces to determine repair and maintenance needs.

Construction Period Interest

This is the interest accrued on funds borrowed to finance the construction of a property and is typically capitalized into the cost of the asset until it is ready for its intended use.