The terms of a lease are as follows: Which of the following is correct?
A) This is an operating lease; the lessor should record the depreciation expense.
B) This is a finance lease; the lessee should record the depreciation expense.
C) This is an operating lease in which the lessor retains most of the ownership risk.
D) This is a finance lease in which the lessor retains most of the ownership risk.

Question

The terms of a lease are as follows:  Which of the following is correct?
A) This is an operating lease; the lessor should record the depreciation expense. 
B) This is a finance lease; the lessee should record the depreciation expense. 
C) This is an operating lease in which the lessor retains most of the ownership risk. 
D) This is a finance lease in which the lessor retains most of the ownership risk.

Quizplus · Accepted Answer

The term "TB1321" in the lease agreement suggests that it is a finance lease, where the lessee should record the depreciation expense. In finance leases, the lessee is responsible for recording the leased asset as their own and for recording depreciation of the asset. Therefore, the correct option is B.

The Terms of a Lease Are as Follows: Which