The lessor recognizes a profit at the inception of the lease when the lease is classified as a(n):

Question

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The lessor recognizes a profit at the inception of the lease when the lease is classified as a sales-type lease. In a sales-type lease, the lessor records a profit (or loss) at the beginning of the lease because the present value of the lease payments exceeds the cost of the leased asset. In contrast, for an operating lease or a non-finance lease, the lessor does not recognize a profit at the inception of the lease. In a direct financing lease, the lessor recognizes interest income over the lease term rather than a profit at the inception of the lease.

The Lessor Recognizes a Profit at the Inception of the Lease