At the beginning of a finance lease, a guaranteed residual value should be:
A) Included as part of lease payments at present value.
B) Included as part of lease payments at future value.
C) Included as part of lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.
D) Excluded from lease payments.

Question

Quizplus · Accepted Answer

The lessee and lessor views the expected excess guaranteed residual value as an additional cash flow to be paid to the lessor (addition to lease payments). The lessee would add the present value of the expected excess guaranteed residual to the present value of the periodic lease payments to record the right-of-use asset and lease liability at the beginning of the lease. The lessor also views the expected excess guaranteed residual value as an additional amount to be collected and includes it in the lease receivable.

At the Beginning of a Finance Lease, a Guaranteed Residual