Which statement is correct?
A)In a finance lease,the lessee uses the asset for only a short fraction of the asset's useful life.
B)The lessee expenses the cost of the lease in the period the benefits are received in a finance lease.
C)A finance lease transfers the risks and rewards from the lessee to the lessor.
D)In a finance lease,the lessee records an asset for the property being used.

Question

Quizplus · Accepted Answer

In a finance lease, the lessee records an asset for the property being used. This is because the lessee assumes the risks and rewards of ownership and has an obligation to make lease payments for a significant part of the useful life of the asset. This is different from an operating lease where the lessor retains ownership of the asset and the lessee only uses the asset for a short period of time, typically less than the full useful life of the asset. Option A is not correct because in a finance lease, the lessee uses the asset for a significant part of the asset's useful life. Option B is not correct because in a finance lease, the lessee capitalizes the cost of the lease and recognizes interest and amortization expenses over the lease term. Option C is not correct because in a finance lease, the lessee assumes the risks and rewards of ownership, while the lessor only retains a residual interest in the asset.

Which Statement Is Correct