While Only Certain Leases Are Currently Accounted for as a Sale

question 170

Multiple Choice

While only certain leases are currently accounted for as a sale or purchase,there is theoretical justification for considering all leases to be sales or purchases.The principle reason that supports this idea is that:

• A) a lease reflects the purchase or sale of a quantifiable right to the use of the property.
• B) during the life of the lease, the lessee can effectively treat the property as if it were owned by the lessee.
• C) all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal.
• D) at the end of the lease, the property usually can be purchased by the lessee.

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Definitions:

Accrual Basis

A financial recording strategy where income and costs are documented at the point they are generated or incurred, irrespective of the timing of cash transactions.

Accounting Principles

The standardized guidelines and rules that govern financial accounting and reporting practices.

External Decision Makers

Individuals or entities outside a company, such as investors or creditors, who use the company's financial information to make decisions.

Rent Receivable

An asset account representing the amount of rent that has been earned but not yet collected by the landlord.