When a lease qualifies as a finance lease, what amount is initially recorded as the cost of the right-of-use asset? A) The present value of the lease payments B) The sum of the gross (undiscounted) lease payments. O A

When a lease qualifies as a finance lease, what amount is initially recorded as the cost of the right-of-use asset? A) The present value of the lease payments B) The sum of the gross (undiscounted) lease payments. O A

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

When a lease qualifies as a finance lease, what amount is initially recorded as the cost of the right-of-use asset?
A) The present value of the lease payments
B) The sum of the gross (undiscounted) lease payments.
O A
O B
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Expert Solution

Step 1

Solution

Concept

In case of finance lease , The initial cost of right of use asset include

Present value of lease liability

ADD : direct costs

ADD : estimated cost of dismantling

ADD : prepaid lease payments

LESS : lease incentives

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