Which of the Following Statements Is True About Initial Direct

question 39

Multiple Choice

Which of the following statements is true about initial direct costs?

• A)Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.
• B)Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes.
• C)Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset.
• D)Initial direct costs of a sales-type lease should be expensed as incurred, and an equal amount of the unearned income should be recognized as income in the same period.

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Definitions:

Additional Unit

An extra item or quantity added to an existing lot or production level.

Law of Demand

An economic principle stating that as the price of a product decreases, consumer demand for the product will increase, and vice versa.

Inverse Relationship

A situation where two variables move in opposite directions, meaning as one variable increases, the other decreases.

Willingness

The readiness or propensity of an individual to engage in a particular action or to accept a certain offer.