Final answer:
In a lease agreement, the lessor recognizes interest revenue over the term of the lease, which compensates for the financing provided. The agreement also details termination procedures that have consequences for premature lease termination.
Step-by-step explanation:
When a lessor enters into a lease agreement, they provide the use of an asset to a lessee in exchange for periodic payments. Throughout the lease term, the lessor recognizes interest revenue, which represents the profit earned from the financing component of the lease. This process aligns with the concept of time value of money, as the lessor is compensated over time for the opportunity cost of renting out the asset. The lease agreement also includes terms related to termination, and it is important for both parties to carefully understand these terms, as premature termination could result in additional costs or legal disputes.