CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

A sales-type lease occurs when the lessor sells the product and finances the sale through a capital lease. The lessor makes a profit or loss from the sale and financing income is recognized over the lease term. True or False?
Correct Answer: True

User Contributed Comments 6

User Comment
kalps Both sales type and direct finance leases are forms of capital leases
danlan Sales type recognizes gain/loss at inception and over the lease term; direct finance recognizes gain/loss over the lease term.
thekid I'M CONFUSED!!!
I thought it would only be considered a 'Sales-type lease' if there was a GAIN at inception....

Look at the glossary of the textbook and it says:
"...PV of the lease pmts. EXCEEDS the carrying value of the leased asset..."
bigmac It would be a negative gain.
johntan1979 danlan's statement is incorrect. Direct financing recognizes no gain or loss. It recognizes financing income or interest income over the life of the lease.
quanttrader in a sales type lease, the manufacturer leases to lessee and collects interest over the term of the loan. Both a manufacturer's profit and financing profit are booked.
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