Correct Answer: B

The excess of the fair value of leased property at the inception of the lease over the lessor's cost is defined as the manufacturer's or dealer's profit. A is incorrect because the unearned income from a sales-type lease is defined as the difference between the gross investment in the lease and the net receivable. C is incorrect because the unearned income from a direct financing lease is defined as the excess of the gross investment over the cost (also the present value of lease payments) on the leased property. A sales-type lease involves a manufacturer's or dealer's profit while a direct financing lease does not.