Question

Give the steps forlease liability.

Answer 1

The steps for lease liability are: identify the lease, recognize the lease liability, recognize the right-of-use asset, account for lease payments, and amortize the lease liability.

Step-by-step explanation:

The steps for lease liability are as follows:

1. Identify the lease: Determine whether an arrangement contains a lease.
2. Recognize the lease liability: Calculate the present value of future lease payments.
3. Recognize the right-of-use (ROU) asset: Record an asset equal to the lease liability plus any initial direct costs.
4. Account for lease payments: Allocate the lease payments between the lease liability and the interest expense.
5. Amortize the lease liability: Over time, reduce the lease liability as lease payments are made.

Let's say XYZ Company signs a lease agreement for a property with a total lease payment of $100,000, with monthly payments of $2,000 for 5 years. XYZ Company would first identify the lease, then calculate the present value of the future lease payments, recognize the lease liability and the ROU asset, and then account for and amortize the lease liability over the term of the lease.