The costs that (a) are associated directly with consummating a lease, (b) are es

Question

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs incurred by the lessee are:

Multiple Choice

added to the right-of-use asset and expensed over an amortization period.

recorded as an expense at the beginning of the lease.

deferred in an operating lease until the asset is returned to the lessor.

a reduction to the lease liability at the beginning of the lease.

Explanation / Answer

Initial direct cost incurred by the lessee are:

recorded as an expense at the beginning of the lease.

In Sales type leases initial direct costs are expensed at the inception of the lease.

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