CFA Practice Question

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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?

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
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