CFA Practice Question

CFA Practice Question

Under a sales-type capital lease ______
A. the entire profit is recognized at the time of the sale, with interest income recognized in future years.
B. profit and interest income is recognized over the life of the lease.
C. interest is recognized as income immediately in terms of present value and profit is recognized over the life of the lease.
Explanation: Under a sales-type capital lease, the entire profit is booked at the time of the lease and interest is booked over the life of the lease. Under an operating lease, both profit and interest are booked over the life of the lease.

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