If the Lessor Incurs Initial Direct Cost to Bring About

question 13

Multiple Choice

If the lessor incurs initial direct cost to bring about the lease,when are those costs expensed in total during the first year of the lease term?

• A)When the lease is classified as a sales-type lease.
• B)When the lease is classified as a direct financing lease.
• C)When the lease is classified as an operating lease.
• D)Initial direct costs are always expensed during the first year of the lease term.

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Definitions:

Inventory Cost

The total cost associated with acquiring, storing, and preparing goods for sale, including purchase price, storage, and handling costs.

Direct Method

A way of preparing the cash flow statement where actual cash flows from operating activities are listed directly.

Periodic Inventory System

An accounting method where inventory is physically counted and valued at specific intervals, typically at the end of an accounting period.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated before the next period begins.