Question

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term

1. operating costs borne by the lessee

2. lessor reports rent revenue

3. viewed as an additional payment when guaranteed by the lessee

4. included with initial direct costs

5. viewed as an additional payment when reasonable certain

choices for answers are - nonlease components, operating lease, purchase option, residual value, sales-type lease selling expense

Answer 1

1. The answer is “non-lease components”. If a lessee does not separate non-lease components then it includes in the lease payments the associated payments that have been allocated to non-lease components.

2. The answer is “operating lease”. In an operating lease the nature of the agreement is like a rental agreement and the lessee pays regular rentals to lessor for the use of assets.

3. The answer is “residual value”. The additional payment can be made in the form of property, cash, or both when a lease terminates.

4. The answer is “sales-type lease selling expense”. The lessor recognizes the initial direct costs involved in a sales-type lease as a selling expense of the period.

5. The answer is “purchase option”. Lease liability includes the exercise price of purchase option that the lessee is reasonably certain to exercise.