A Lessor Mistakenly Treated a Direct Financing Lease as an Operating

A lessor mistakenly treated a direct financing lease as an operating lease (the lessor uses straight-line depreciation) .How does this mistake impact the following at the end of the first year of the lease term? $\begin{array}{lcc}&\textbf { Net Income }&\textbf { Interest Revenue }\\\hline\text { a. } & \text { Overstated } & \text { Understated } \\\text { b. } & \text { Understated } & \text { Understated } \\\text { c. } & \text { Overstated } & \text { Overstated } \\\text { d. } & \text { Understated } & \text { Overstated }\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Correct Answer:

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