Question: A lease that involves a manufacturer’s or dealer’s profit is a (an):

1. direct financing lease.
2. finance lease.
3. operating lease.
4. sales-type lease.

A lease is a commercial transaction in which the owner of an asset grants the user of the item the right to use the asset for a fixed length of time. The owner of the asset is referred to as the 'Lessor,' while the user to whom the right is transferred is referred to as the 'Lessee.'

The lessor is thought to be selling a product to the lessee under a sales-type lease, which necessitates the reporting of a profit or loss on the sale. As a result, at the lease's start date, the accounting looks like this:

1. Identify assets,
2. Identify net investment,
3. Identify profit or loss, and
4. Identify initial direct costs

A profit is made by the manufacturer or dealer in a sales-type lease. So, the correct option is (4) a Sale-type lease

Option 1) the lessor recognizes the gross investment in the lease and the accompanying amount of unearned revenue under a direct financing lease.

Option 2) the transfer of ownership rights from one party to another at the completion of the lease period is term as a capital lease or finance lease.

Option 3) an operating lease may be a short-term lease or contract in which the tenant concurs to lease a resource from the lessor whereas the lessor holds possession rights.