The amount to be recorded as the cost of an asset under finance lease is equal to the
A) Present value of the lease payments plus the present value of any unguaranteed residual value.
B) Carrying value of the asset on the lessor's books.
C) Present value of the lease payments.
D) Present value of the lease payments or the fair value of the asset, whichever is lower.

Question

Quizplus · Accepted Answer

The cost of an asset under a finance lease is equal to the present value of the lease payments. This approach reflects the lessee's obligation to make lease payments over the lease term, discounted at the interest rate implicit in the lease or the lessee's incremental borrowing rate if the implicit rate cannot be readily determined.

The Amount to Be Recorded as the Cost of an Asset