Where a lessor is involved in a finance lease (risk has passed to the lessee)the lessor must:
A) Remove the asset in question from their balance sheet as they no longer own it.
B) Record a new asset on their balance sheet, a lease receivable, to replace the leased asset.
C) Only record the revenue earned from lease payments in the income statement as they are received.
D) Record the sale of the asset to the lessee to ensure the accounting records accurately reflect control of the leased asset.
E) None of the given answers.

Question

Quizplus · Accepted Answer

In a finance lease, the lessor transfers the risks and rewards of ownership to the lessee, but still retains legal ownership of the asset. Therefore, the lessor must recognize the lease receivable on their balance sheet as the replacement of the leased asset. This represents the present value of future lease payments from the lessee to the lessor.

Where a Lessor Is Involved in a Finance Lease (Risk