A noncancelable lease contains a bargain purchase option.The fair value of the asset exceeds the lessor's cost of the asset.Collectibility of the lease payments is assured and there are no material cost uncertainties surrounding the lease.Therefore,the lease will be accounted for by the lessor as a(n):
A)Sales-type lease.
B)Direct financing lease.
C)Operating lease.
D)Guaranteed lease.

Question

Quizplus · Accepted Answer

A noncancelable lease with a bargain purchase option where the fair value of the asset exceeds the lessor's cost of the asset and collectibility of lease payments is assured and there are no material cost uncertainties surrounding the lease is accounted for as a sales-type lease. In a sales-type lease, the lessor recognizes a net investment in the lease at the present value of the lease payments and the profit or loss on the sale is recognized upfront.

A Noncancelable Lease Contains a Bargain Purchase Option