In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income

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In a direct-financing lease, the lessor records unearned income, which represents the difference between the gross investment in the lease and the cost of the leased asset. This unearned income should be amortized over the lease term using the effective interest method, which allocates the income over the lease term in a way that reflects a constant periodic rate of return on the net investment.

In a Lease That Is Appropriately Recorded as a Direct-Financing