Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

-If the lessor retains title to leased property under the terms of the lease:
A) The amount to be recovered through periodic lease payments is reduced by the present value of any residual amount.
B) The amount to be recovered through periodic lease payments is increased by the present value of the residual amount.
C) The amount to be recovered will be the same as if there were no residual value.
D) The lessor will record a greater amount of depreciation due to the residual value.

Question

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.
 
-If the lessor retains title to leased property under the terms of the lease:
A) The amount to be recovered through periodic lease payments is reduced by the present value of any residual amount. 
B) The amount to be recovered through periodic lease payments is increased by the present value of the residual amount. 
C) The amount to be recovered will be the same as if there were no residual value. 
D) The lessor will record a greater amount of depreciation due to the residual value.

Quizplus · Accepted Answer

When the lessor retains title to leased property, the amount to be recovered through periodic lease payments is reduced by the present value of any residual amount. This is because the residual value represents the value of the asset that the lessor expects to recover at the end of the lease term, separate from the lease payments.

Refer to the Following Lease Amortization Schedule