Initial Direct Costs Incurred by a Lessor in Consummating a Sales-Type

question 20

Multiple Choice

Initial direct costs incurred by a lessor in consummating a sales-type lease are

• A) charged to unearned income in the first period of the lease term.
• B) charged to cost of sales in the first period of the lease term.
• C) deferred and allocated over the lease term in proportion to the recognition of rent revenue.
• D) deferred and allocated over the lease term on a straight-line basis.

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Definitions:

Investment Center

A business segment or unit within an organization that is responsible for its own revenues, expenses, and investments.

Department Manager

An individual responsible for overseeing the operations, budget, and personnel of a specific department within a company.

Revenues

The total income generated by a company from its business activities, such as the sale of goods or provision of services, before any expenses are deducted.

Profit Margin

A financial ratio that shows the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency at which a company generates profit.