Answered: When is it appropriate for the lessee…

When is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 11Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

When is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments?

A.when the lessee's incremental borrowing rate is lower than the lessor's rate

B.whenever the lessee knows what the lessor's rate is

C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate

D.when the lessor's rate is higher than the lessee's incremental borrowing rate

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