If an asset has a positive salvage of $1,000, exactly equal to UCC, then the lease analysis for an asset alone in its pool will show the following cash flows for that phenomenon.
A)the salvage is a cost to leasing; there is no terminal loss or gain.
B)the salvage is a cost of owning, the terminal loss is $1,000.
C)salvage has no effect on leasing, since it belongs to the owner.
D)the tax shelter for the terminal gain will be $1,000.

Question

Quizplus · Accepted Answer

Since the salvage is equal to the UCC, there will be no terminal gain or loss. The salvage will be subtracted from the cost of leasing, resulting in a cost to leasing. The salvage belongs to the owner, but it has already been factored into the lease analysis. Therefore, it has no effect on the lease analysis for the individual asset in the pool. There will be no tax shelter for the terminal gain or loss.

If an Asset Has a Positive Salvage of $1,000, Exactly