Example $9-$ Operating lease $($lessee accounting$)$

Lessee enters into a three$-$year lease for retail space and concludes that the agreement is an operating lease. Lessee pays initial direct costs of $\backslash (\backslash$$ $3,000\backslash ).$ The agreement provides the following:

Complete the following schedule to show the impact on the income statement and balance sheet.

Cash lease payments

Income statement:

Periodic lease expense $($straight line$)$

$($Accrued$)$ prepaid rent for period

Balance sheet:

ROU asset:

Lease liability

Adjust: accrued rent $($cumulative$)$

Unamortized initial direct costs

Lease liability

Prepare the journal entries at the time of the lease commencement and for Year $1$ of the lease term.