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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Initial Direct Costs

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
  • General overhead associated with the leased asset—$10,000

Required:

  1. 1. Explain what initial direct costs are.
  2. 2. 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.
  3. 3. Which of the above amounts should Efland consider initial direct costs?

1.

To determine

Explain about the initial direct costs.

Explanation

Initial Direct Costs: Initial direct costs refer to the costs that a lessor incurs directly while a lease is being negotiated and initiated...

2.

To determine

Explain the manner Company E should account for initial direct costs if given lease is (a) an operating lease, (b) a sales-type lease, and (c) a direct financing lease.

3.

To determine

Identify the amount that should consider as initial direct costs by Company E.

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