If the Residual Value of a Leased Asset Turns Out

question 101

Multiple Choice

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee,the:

• A) lessee may reduce depreciation expense for the prior year, through a prior period adjustment, to take into account the excess.
• B) lessor is under no obligation to compensate the lessee for the excess.
• C) lessor must pay the lessee the amount of the excess.
• D) lessee may reduce the annual rentals for the excess.

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Definitions:

Sealed-Bid Auction

A type of auction where all bidders simultaneously submit sealed bids to the auctioneer, and the highest bidder wins without knowing the bids of the others.

Private Values

A situation in auctions or market transactions where the value of an item is known only to the individual bidder or participant, not to the other bidders or the seller.

Vickrey Auction

An auction model where sealed bids are submitted, and although the item goes to the highest bidder, the price they pay is determined by the second-highest bid.

English Penny Black

The world's first adhesive postage stamp used in a public postal system, issued in Great Britain in 1840.