When does the lessee report executory costs as an expense?
A)When they are spelled out in the lease agreement.
B)Only when they are incurred by the lessee and the lease is classified as a capital lease.
C)When they are incurred by the lessee.
D)Only when they are incurred by the lessee and the lease is classified as an operating lease.

Question

Quizplus · Accepted Answer

Executory costs are expenses that are not included in the lease payments but are incurred by the lessee in order to use the leased asset. These costs should be expensed by the lessee as they are incurred, regardless of whether the lease is classified as operating or capital. Therefore, the correct answer is C, which states that the lessee should report executory costs as an expense when they are incurred.

When Does the Lessee Report Executory Costs as an Expense