Which of the following statements is correct?
A) For direct-financing leases, initial direct costs are added to the net investment in the lease.
B) For sales-type leases, initial direct costs are expensed in the year of incurrence.
C) For operating leases, initial direct costs are deferred and allocated over the lease term.
D) All of these answers are correct.

Question

Quizplus · Accepted Answer

For direct-financing leases, initial direct costs are indeed added to the net investment in the lease, reflecting the costs incurred by the lessor in originating the lease. For sales-type leases, these costs are expensed immediately, recognizing the expense associated with the sale. For operating leases, initial direct costs are deferred and allocated over the lease term, spreading the cost over the period in which lease income is earned. Therefore, all of these statements correctly describe the accounting treatment of initial direct costs for their respective lease types.

Which of the Following Statements Is Correct