[Biff-1955-Tannen]

Can somebody explain to me how I differentiate the difference between a sales type lease and direct financing lease in the following question? What key word or key aspect of this says that it is sales type and not direct financing?

Theamatics, Inc., leased 400 acres of vacant land from Farmco, Inc., on January 1. Theamatics hopes to construct a hotel-shopping center complex on the land. The lease agreement states that title to the land will pass to Theamatics at the end of the lease term. The cost of the land to Farmco was $500,000. The fair value of the land and the present value of the lease payments is $625,000. The collectibility of the lease payments is reasonably predictable, and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by Farmco on the lease. What type of lease is this for Farmco?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[monikernc]

Try reading this article i think it does a good job of walking through it. https://accounting-financial-tax.com/2009/07/leases-classification-involving-land-building-and-equipment-real-estate/

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
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[Andyred04]

I actually just got done reading this chapter in my Gleim Textbook and from what I understand, since the FV of the lease (selling price) differs from the cost, this is a Sales-Type Lease.

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

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