A lessee has the following amortization schedule for a particular lease: The company entered into the lease
Question:
A lessee has the following amortization schedule for a particular lease:
The company entered into the lease at the beginning of its fiscal year, on January 1, 2019. Depreciation follows the straight-line method.
Required:
Provide the appropriate presentation of this lease in the lessee’s statement of financial position for December 31, 2020, distinguishing amounts that are current from those that are non-current.
Present value of lease payments Less: payment made at commencement date Lease liability Payment made at commencement date Initial direct costs ROU asset Interest rate implicit in lease as known Date Payment 01/01/2019 12/31/2019 01/01/2020 12/31/2020 01/01/2021 12/31/2021 01/01/2022 $33,594 33,594 33,594 12/31/2022 01/01/2023 33,594 Small differences due to rounding Interest expense $6,984 5,388 3,695 1,902 $150,000 33,594 $116,406 33,594 0 $150,000 6.0% Lease liability $116,406 123,390 89,796 95,184 61,590 65,286 31,692 33,594 0
Step by Step Answer:
As of December 31 2020 the lessees statement of financial posi...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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