6. If the benefits and risks of ownership have been transferred in a lease agree

Question

6. If the benefits and risks of ownership have been transferred in a lease agreement, a capital lease should be recognized. Besides this, another conceptual consideration for recording capital leases for the lessee and sales or direct-financing leases for the lessor is

A. consistency in accounting between the lessee and lessor

B. the use of the same discount rate for present value computations by both the lessee and lessor

C. the same asset cost-basis for both the lessee and lessor      

D. the recognition of the same amount of interest revenue (lessor) and interest expense (lessee)

Explanation / Answer

D. the recognition of the same amount of interest revenue (lessor) and interest expense (lessee)

Interest accrues to the lessor at the effective interest rate in a direct financing lease as interest revenue from financing the purchase of the asset by the lessee.

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