Asked by Reshelle Ytuarte on Jul 08, 2024
Verified
With a leveraged lease,the lessor must treat the lease as a/n
A) operating lease.
B) ordinary capital lease.
C) direct financing capital lease.
D) sales-type capital lease.
Leveraged Lease
A leasing arrangement in which the lessor uses borrowed funds to acquire the asset that is then leased out, allowing the lessor to benefit from tax advantages and leverage.
Operating Lease
A contract that allows for the use of an asset but does not transfer ownership of the asset to the lessee.
Capital Lease
A financial agreement where a lessee gains significant property rights, making it similar to owning the asset, for accounting purposes.
- Comprehend the fundamental principles and varieties of leases (operating, capital, sales-type, direct financing) and their attributes as defined by GAAP.
Verified Answer
DM
Dlamuka MinenhleJul 10, 2024
Final Answer :
C
Explanation :
A leveraged lease is a form of financing in which the lessor borrows a significant portion of the funds required to buy the leased asset, from a third-party lender. The lessee generally makes payments that cover the principal and interest on the borrowed amount, as well as the lease payments to the lessor. The lease is treated as a direct financing capital lease because the lessor is financing the acquisition of the asset and earning interest income on the borrowed funds.
Learning Objectives
- Comprehend the fundamental principles and varieties of leases (operating, capital, sales-type, direct financing) and their attributes as defined by GAAP.