CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

The excess of the fair value of lease property at the inception of the lease over its cost or carrying amount should be considered by the lessor as ______.

A. unearned income from a sales-type lease
B. manufacturer's or dealer's profit from a sales-type lease
C. manufacturer's or dealer's profit from a direct financing lease
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.

User Contributed Comments 2

User Comment
kalps Excess of fair value over the lessor's cost is know as the dealer's profit
moneyguy A direct financing lease yields no initial transaction profit. Revenues are the interest payments received by lessor.
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