Question

When lessors account for residual values related to leased assets, they

include the residual value in the receivable measurement because it is assumed the residual value will be realized.

recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value.

reduce the residual value by the executory costs.

include the unguaranteed residual value in sales revenue.

Answer 1

Lessors include residual values in the receivable measurement. Sales-type leases with guaranteed residual values yield more gross profit. Executory costs are not included in the residual value. Unguaranteed residual value is not part of sales revenue.

Step-by-step explanation:

When lessors account for residual values related to leased assets, they include the residual value in the receivable measurement because it is assumed the residual value will be realized.

In a sales-type lease with a guaranteed residual value, the lessor recognizes more gross profit compared to a sales-type lease with an unguaranteed residual value.

Executory costs are typically not included in the residual value. However, they are considered separately and deducted from the unguaranteed residual value.

The unguaranteed residual value is not included in sales revenue. It may be considered as additional income when realized at the end of the lease term.