Accounting for leases in the United States
Lessor Accounting

Most lessor accounting is not substantially changed between ASC 840 and ASC 842. The change from executory costs to nonlease components, discussed above, applies equally to lessors. Leveraged leasing is discontinued, though leveraged leases entered into before the effective date of ASC 842 can continue to be accounted for under ASC 840 unless they are modified. The distinction between sales-type and direct financing leases has changed: whereas in ASC 840 the test was whether the fair value of the leased asset was different from the lessor's cost or carrying amount (if so, the lease is a sales-type lease), in ASC 842, any lessor lease that meets the lessee finance lease tests (based on rents and guaranteed residuals due from the lessee) is a sales-type lease; direct financing treatment applies if the lease is capital only because a third-party residual guarantee causes the present value test to be met. The primary difference in accounting between a sales-type lease and a direct financing lease is that profit for a sales-type lease is recognized at inception, while profit for a direct financing lease is recognized over the life of the lease.
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