- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 8. Topics in Long-Term Liabilities and Equity
- Subject 4. Accounting and Reporting by the Lessor
CFA Practice Question
American Insurance Company leases trucks to trucking companies. The leases both transfer property rights to the lessees and give the insurance company a reasonably accurate estimate of the amount and collectability of the future cash inflows. What type of leases are these?
B. Sales-type lease
C. Direct financing lease
A. Operating lease
B. Sales-type lease
C. Direct financing lease
Correct Answer: C
Under these conditions American Insurance Company accounts for the leases as direct financing leases because American Insurance Company is a financial institution.
User Contributed Comments 6
| User | Comment |
|---|---|
| katybo | what is the difference with CL? bargain option? |
| Done | And they don't manufacture the trucks they lease |
| Nightsurfer | Good comment Done. |
| thekobe | Direct Financing with an intermediary |
| johntan1979 | The keywords as to why direct financing, not sales type lease is "American Insurance Company" = financial institution |
| johntan1979 | And like what Done said, they don't manufacture the trucks. Read the notes: Main difference between direct financing and sales type is the absence/presence of manufacturer's or dealer's profit |