Question

In computing lease payments, the amount to be recovered by the lessor is the

a. cost of the leased asset less the present value of the asset's residual value
b. fair market value of the leased asset less the present value of the asset's residual value
c. cost of the leased asset less the asset's residual value
d. fair market value of the leased asset less the asset's residual value

Answer 1

The correct answer is b. fair market value of the leased asset less the present value of the asset's residual value.

Step-by-step explanation:

The correct answer is b. fair market value of the leased asset less the present value of the asset's residual value.

When computing lease payments, the lessor aims to recover the cost of the leased asset. This is done by subtracting the present value of the asset's residual value from the fair market value of the leased asset. The residual value represents the estimated value of the asset at the end of the lease term.

For example, let's say a lessor leases a car with a fair market value of $20,000. The estimated residual value of the car after the lease term is $5,000. The amount to be recovered by the lessor would be $20,000 - $5,000 = $15,000.