Final answer:
The distinction between a direct financing lease and a sale-type lease for a lessor is the presence of manufacturer or dealer's profit in a sale-type lease. Therefore, the correct option is C.
Step-by-step explanation:
When differentiating between a direct financing lease and a sale-type lease for a lessor, one key factor is the manufacturer or dealer's profit. In a direct financing lease, the lessor is simply financing the asset and does not realize any profit at the inception of the lease, beyond the interest income over the lease term. Conversely, in a sale-type lease, the lessor does include a manufacturer or dealer's profit or loss into the transaction, which means there is an inherent profit or loss recognized at the instantiation of the lease based upon the fair value of the leased asset relative to the lessor's book value. The presence or absence of executory costs, minimum lease payments, or guaranteed residual value do not primarily distinguish between these two types of leases, as these elements can be present in both.