If a Capital Lease Has a Guaranteed Residual Value, How

question 19

Multiple Choice

If a capital lease has a guaranteed residual value, how should the lessee account for it at the inception of the lease?

• A) The initial asset and liability should be increased by the present value of the residual value.
• B) The initial asset and liability should be increased by the amount of the residual value.
• C) The initial asset and liability should be decreased by the present value of the residual value.
• D) The initial asset and liability should be decreased by the amount of the residual value.

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Definitions:

Opportunity Cost

The financial loss associated with rejecting the subsequent preferable choice when deciding or selecting amongst various options.

Specialization

The process of focusing on and becoming expert in a particular subject or skill, or of businesses, regions, or nations concentrating on producing certain goods or services.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, essentially what is given up when choosing one option over another.

Specialization

The practice of focusing effort on a particular field or discipline, leading to increased efficiency and expertise in that area.