Question

Which of the following would not be a characteristic of a financial lease?

a. are usually fully
b. usually require the lessor to maintain and insure the leased
c. usually do not include a cancellation
d. lessee usually has the right to renew the lease at expiration.

Answer 1

A financial lease is a long-term lease agreement that transfers ownership risks and benefits to the lessee. It usually covers the full cost of the asset, requires maintenance and insurance by the lessor, and allows the lessee to renew the lease. However, it usually does not include a cancellation option.

Step-by-step explanation:

Characteristics of a Financial Lease

A financial lease is a long-term lease agreement that transfers substantially all the risks and benefits of ownership to the lessee. It is commonly used for acquiring assets such as equipment, machinery, or vehicles for a fixed period of time. Here are the characteristics of a financial lease:

1. Are usually fully: Financial leases generally cover the full cost of the asset being leased, including the purchase price and any associated costs.
2. Usually require the lessor to maintain and insure the leased: The lessor is responsible for maintaining and insuring the leased asset throughout the lease term.
3. Usually do not include a cancellation: Financial leases typically do not include an option to cancel the lease before the expiration date.
4. Lessee usually has the right to renew the lease at expiration: The lessee often has the right to renew the lease agreement at the end of the lease term, usually at a predetermined price or terms.

Based on the characteristics above, the answer is c. usually do not include a cancellation, as financial leases typically do not have a cancellation option.