Question

imhoff company leases a new building form noble construction, inc. The present value of the lease payments is $700000. The lease is a finance lease. Prepare the journal entry that the lesse should make to record this transaction.

Answer 1

Dr right-of-use asset $700,000

Cr lease liability $700,000

Step-by-step explanation:

The company upon entering into the finance lease would have to show the lease as an asset(right-of-use asset) as well as the lease liability(present value of lease obligations owed to the lessor).

As a result, the company would debit right-of-use asset with $700,000 while lease liability is also credited with the same amount