What is the purpose of the entry made by the lessor to recognize leases that transfer ownership?

In the context of recognizing leases that transfer ownership, the appropriate entry made by the lessor is centered around recognizing the financial impact of the lease transaction. When a lease transfers ownership, it is treated as a sale of the asset rather than a simple leasing arrangement. In such cases, the lessor would recognize the lease as a sale, necessitating the recording of the asset being leased as a sale on their financial statements.

On entering this lease, the lessor would typically record the asset as a receivable, which corresponds with the future lease payments expected to be received. However, the most relevant entry reflecting the nature of the transaction is the recognition of deferred inflows, which represent the obligation of the lessee to pay for the usage of the asset during the lease term. The deferred inflows reflect an economic resource that the lessor expects to realize as revenue over time as the obligations are fulfilled.

Choosing this option accurately aligns with the accounting principles surrounding leases that transfer ownership, specifically guided by the new lease accounting standards. These standards dictate how leases must be recognized and measured on the balance sheet. The other options refer to aspects that either do not fit the context of lease accounting or are specific to different scenarios within revenue recognition or budgeting rather than lease ownership