Question
Efland Company leases equipment to Orange Company. Efland incurred the following costs associated with the lease: Advertising to find a lessee$20,000 Commissions for the salesperson$25,000
Efland Company leases equipment to Orange Company. Efland incurred the following costs associated with the lease: Advertising to find a lessee$20,000 Commissions for the salesperson$25,000 Negotiating fees to sign the contract$10,000 Payment to an existing lessee to terminate its lease early$30,000 The general overhead associated with the leased asset$10,000
Required:
Explain what initial direct costs are.
Indicate precisely how Efland should account for initial direct costs if this lease is (a) an operating lease, (b) a sales-type lease, and (c) a direct financing lease.
Which of the above amounts should Efland consider initial direct costs?
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