The primary difference between a direct-financing lease and a sales-type lease under ASC 842 is the
A) Whether the five lease recognition criteria are met
B) Amount of the depreciation recorded each year by the lessor
C) Allocation of initial direct costs by the lessor to periods benefited by the lease arrangements
D) Manner in which rental receipts are recorded as rental income

Question

Quizplus · Accepted Answer

The primary difference between a direct-financing lease and a sales-type lease under ASC 842 is whether the five lease recognition criteria are met. In a sales-type lease, the lessor recognizes a profit or loss at lease inception, while in a direct-financing lease, the lessor only recognizes interest income over the term of the lease. The amount of depreciation recorded each year by the lessor, the allocation of initial direct costs by the lessor, and the manner in which rental receipts are recorded as rental income are all secondary differences between the two lease types.

The Primary Difference Between a Direct-Financing Lease and a Sales-Type