Final answer:
In connection with a lease, a lessor would not record a right-of-use asset (option c). This is an entry made by the lessee, who acquires the right to use the leased asset. The lessor would record entries such as interest revenue, lease receivable, and lease revenue.
Step-by-step explanation:
The question being asked pertains to what a lessor would not record in connection with a lease. A lessor is the entity that owns the leased asset and grants the lessee the right to use the asset in exchange for lease payments.
Upon entering into a lease agreement, a lessor would record:
- Interest revenue: As the lessor provides financing to the lessee for the use of the asset, interest revenue is recognized over the lease term based on the interest rate implicit in the lease or the lessor's incremental borrowing rate.
- Lease receivable: Represents the net investment in the lease for the lessor, including the sum of all lease payments plus any residual value, minus any lease incentives provided.
- Lease revenue: This represents the income earned from the lease agreement, excluding interest revenue, and is recognized on a straight-line basis over the lease term unless another systematic basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished.
However, the lessor would not record:
- Right-of-use asset: This is recorded by the lessee, who holds the right to use the leased asset for the lease term. The lessee records this asset on their balance sheet, representing the right to use the underlying leased asset.
Thus, the correct answer to the question is that a lessor would not record a right-of-use asset in connection with a lease agreement.