Which lease type contains a payment stream that requires the lessee to make payments that either increase (step-up) or decrease (step-down) in amount over the lease term?

Which lease type contains a payment stream that requires the lessee to make payments that either increase (step-up) or decrease (step-down) in amount over the lease term?

• A. Progress Payment
• B. Step Payment Lease
• C. Wet Lease
• D. Chattel

Answer: (B)

The key idea is how a lease’s payment schedule is structured over time. A Step Payment Lease is built so the payments change in defined increments during the term—either increasing (step-up) at set times or decreasing (step-down) at others. This lets the lease align payments with anticipated changes in value, usage, or costs, rather than keeping them level throughout. For example, you might start with a lower payment that rises every year, or start higher and decrease at later dates as the asset’s obligations lessen. The other options don’t focus on a stepped payment pattern: a progress payment relates to payments tied to project milestones, a wet lease involves providing crew and services, and chattel refers to movable personal property.

The key idea is how a lease’s payment schedule is structured over time. A Step Payment Lease is built so the payments change in defined increments during the term—either increasing (step-up) at set times or decreasing (step-down) at others. This lets the lease align payments with anticipated changes in value, usage, or costs, rather than keeping them level throughout.

For example, you might start with a lower payment that rises every year, or start higher and decrease at later dates as the asset’s obligations lessen. The other options don’t focus on a stepped payment pattern: a progress payment relates to payments tied to project milestones, a wet lease involves providing crew and services, and chattel refers to movable personal property.