When a lease is classified as a finance lease from the lessee's perspective and a sales-type lease from the lessor's perspective, (1) the lessee records a right-of-use asset and a lease liability for the present value of the lease payments, and (2) the lessor records a lease receivable for the same amount and removes the asset from its books. The lessor recognizes interest revenue and the lessee recognizes interest expense at the effective rate times the outstanding balance. The lessee amortizes the right-of-use asset on a straight-line basis. For an operating lease, the two components interest and amortization, are shown as one lease expense in the income statement. 

1.Amortization of a right-of-use asset over the lease term is recorded by the 

Multiple Choice 

a. Lessor with a debit to Amortization Expense. 

b. Lessor with a debit to Amortization Expense. 

c. Lessor with a debit to right-of-use asset 

d. Lessor with a debit to Right-of-use asset. 

2.Assume that a lessor applies the five criteria to a lease involving equipment and determines that a lease should be classified as a sales-type lease. The entry the lessor will record at the beginning of the lease will include a: 

Multiple Choice 

a. Credit to Right-of-use asset for the carrying amount of the equipment. 

b. Credit to Right-of-use asset for the present value of the lease payments. 

c. Debit to Lease receivable for the present value of the lease payments. 

d. Debit to Lease receivable for the sum of the cash payments over the term of the lease.