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For a sales-type lease:_______

a) the gross profit will be lower if the residual value is unguaranteed
b) the gross profit will be higher if the residual value is guaranteed
c) the present value of the unguaranteed residual value is added
d) to determine the cost of goods sold

1 Answer

7 votes

Answer:

no option is correct (I assume options C and D were one option only)

Step-by-step explanation:

On a sales type lease, the gross profit generated by the lease is determined in a similar way that net present value of a project is determined.

You must first calculate the present value of the lease payments that should be received using the company's discount rate, and then subtract the asset's value. If the present value of the future lease payments is higher than the present value of the asset, then you should have a gross profit.

The gross profit is not affected whether the asset has or doesn't have a guaranteed residual value.

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