The lessor recognizes both interest income and a manufacturer's or dealer's profit during the first year of the lease term when the lease is classified as a sales-type lease.

Question

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In a sales-type lease, the lessor is effectively selling the leased asset to the lessee and is recognized as a sale. Therefore, the lessor would recognize both interest income and profit during the first year of the lease term.

The Lessor Recognizes Both Interest Income and a Manufacturer's or Dealer's