Blue Manufacturing produces lathes at an inventory cost of $25,000 each that sell for $32,000. For credit-approved customers, Blue leases the lathes for $8,500 per year for five years. The lathes are guaranteed to last four years and generally have a six-year life.
-Blue Manufacturing treats a lathe lease as a/an

Question

Quizplus · Accepted Answer

A sales-type lease is a lease where the lessor (Blue Manufacturing) is deemed to have transferred all the risks and rewards of ownership to the lessee (customer). In this case, Blue Manufacturing is assuming a considerable amount of risk by leasing the lathes for five years, but the lease revenue ($8,500 per year) covers the inventory cost ($25,000 each), making it a sales-type lease.

Blue Manufacturing Produces Lathes at an Inventory Cost of $25,000