In subsequent measurement of a direct financing lease, the lessor computes interest revenue using the ________ method. The lessor allocates lease payments first to cover the ________ and then to ________ the NIL-DF. The interest revenue, which is reported on the income statement, is the amount that produces a constant periodic discount rate on the remaining balance of the NIL-DF.
A) straight-line interest; interest; reduce
B) straight-line interest; interest; increase
C) effective interest rate; interest; reduce
D) effective interest rate; interest; increase

Question

Quizplus · Accepted Answer

The lessor uses the effective interest rate method to compute interest revenue, allocating lease payments first to cover the interest and then to reduce the net investment in the lease (NIL-DF).

In Subsequent Measurement of a Direct Financing Lease, the Lessor