Final answer:
In the beginning of a lease, a lessee records the present value of periodic lease payments and, if applicable, the present value of a cash payment expected at lease-end due to a guaranteed residual value, as both a right-of-use asset and lease liability. The correct answer is option B. and D.
Step-by-step explanation:
When a lessee makes an entry at the beginning of a lease, the amount that will be recorded as both a right-of-use asset and a lease liability includes several components. These components reflect the lessee's obligation to make lease payments and the right to use the leased asset over the lease term.
- Present value of periodic lease payments
- Present value of a cash payment expected to be made at the end of the lease term because of a guaranteed residual value
The fair value of the leased asset is not included because the lease liability and right-of-use asset are based on the lease payments, not the asset's fair value. The present value of expected residual value is also not included unless there is a guaranteed residual value where the lessee is either likely to incur an obligation or has guaranteed the residual value to the lessor.