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Explain what initial direct costs are

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Problem - 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. Explain what initial direct costs are.

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. Which of the above amounts should Efland consider initial direct costs?

Reference no: EM132892066

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