logo
Ask Question

Asked by Nirvir Khosa on May 22, 2024

verifed

Verified

When a lessor receives cash on a sales-type lease, which of the following accounts is decreased?

A) Interest Revenue: Leases
B) Lease Rental Revenue
C) Lease Receivable
D) Unearned Interest: Leases

Sales-type Lease

A leasing arrangement in which the lessor recognizes immediate profit on the leased asset, often used in scenarios where the lessor is also the manufacturer or dealer of the equipment.

Lease Receivable

Represents the payments that a lessor is entitled to receive based on the terms of a lease agreement.

Interest Revenue

Income earned by an entity from lending money or investing in interest-bearing financial instruments.

  • Understand the accounting treatment for lease payments received by a lessor in a sales-type lease.
verifed

Verified Answer

AK
ay?egül kademMay 27, 2024
Final Answer :
C
Explanation :
When a lessor receives cash on a sales-type lease, the Lease Receivable account is decreased as the lease payments are being received and applied towards the outstanding lease balance. Option A, Interest Revenue: Leases, would only be decreased if the lease payments were being made towards the interest portion of the lease. Option B, Lease Rental Revenue, would not be decreased as this account represents the total income earned from the lease and is not affected by cash received. Option D, Unearned Interest: Leases, would only be decreased if the lease contained an interest component that was paid in advance by the lessee.

Related questions

The Lessor Does Not Have Any Asset Recorded in Its ...

Current GAAP Defines Lessors' Treatment of Leases According to Type ...

Which of the Following Statements Concerning Leases Is True ...

The Lessee Has Substantially All of the Benefits and Risks ...

A Lease Where the Intent Is Temporary Use of the ...