1. Assume company X enters into a new lease in Brazil to support expansion of our mobility business. This lease meets our capitalization criteria and the key lease terms are as follows:

a. Lease execution date: June 30, 2022

b. Rent commencement date: September 1, 2023

c. Lease possession date: March 1, 2023

d. Lease term: 5 years

e. Rental abatement period: 6 months

f. Rent escalators annually tied to LIBOR

Based on the facts above, please answer the following:

What is the capitalization date of this new lease?

What is the journal entry day 1 when the lease is capitalized?

What are the ongoing monthly journal entries? (assume we are in 2025 and are actively making monthly payments on this lease) Provide JE example for one month

2. The accounting manager runs the trial balance by entity and discovers there are 100 entities with negative balances. What approach would you take to solve this issue?

3. You are a senior accountant in the lease accounting team and have finished booking all of your month end close journal entries. Describe the steps you would take to reconcile/check your work.

4. You are in the month of September 2023 and become aware of an early termination of a lease agreement that was executed in September after the lease subledger is closed for the month. The initial lease expiration date was 6/30/24, but this lease will now be early terminated effective 12/31/23. The early termination requires a termination fee of $100,000 and broker fees of $20,000, both of which will be paid in December 2023. What journal entries are required (if any) during the month of September? What additional information is needed to determine the financial impact of the early termination?

5. Leases are discounted using Company A's incremental borrowing rate (IBR) as determined by a third party. Please indicate (Yes/No) if a remeasurement of the IBR is needed in the following scenarios and document the basis for your conclusion:

a. Annual lease payment escalators are tied to a public index and thus estimated upon entering into the lease. On year 2, we receive a notice from the landlord on what the new monthly rate will be based on the indexed actual change. Is an IBR update required?

b. A lease has a 12 month rental abatement period, before our first payment is due. The landlord has offered 1 extra month of rent abatement prior to our first payment due to construction delays. The monthly rental payments remain the same, the only change is the additional abatement period which extends our lease term by 1 month. Is an IBR update required?

c. A lease was capitalized using the lease agreement estimated square footage of 100,000 sq. ft. The rent payments are $60 per sq.ft/yr during the first year and increase by 3% each year thereafter throughout the lease term. After delivery of the space, a measurement was conducted and concluded the square footage is actually only 97,000 sq.ft of rentable space. Is an IBR update required?

6. What is the difference between an operating lease and a finance lease? Is there any difference in the journal entries between the two? If so, please explain.

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