Question

When a lessee makes an entry at the beginning of a lease, which of the following are included in the amount that will be recorded as both a right-of-use asset and a lease liability?

Check All That Apply
A. Fair value of the asset leased
B. Present value of a cash payment expected to be made at the end of the lease term because of a guaranteed residual value
C. Present value of expected residual value
D. Present value of periodic lease payments

Answer 1

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.