Question

In a lease that is recorded as a finance- sales type lease by the lessor, interest revenue ___________.a. should be recognized over the period of the lease using the effective interest method. b. should be recognized over the period of the lease using the straight-line method. c. should be recognized in full as revenue at the lease’s inception. d. does not arise.

Answer 1

B

Step-by-step explanation:

In a lease that is recorded as a finance- sales type lease by the lessor, interest revenue should be recognized over the period of the lease using the effective interest method

The effective interest method uses a constant rate of interest applied to any outstanding lease obligation. Though the interest rate being constant, the interest

expense will be different each period because the obligation outstanding changes each period, so this should be recognized when recorded