Next, based on the calculations above, lets build the financial statement to reflect this operating lease. To simplify the case, assuming there is no tax and gross profit at a constant $650,000/year.

Please fill in the Lease Liability and Lease Expense in the spreadsheet below.

HINT: Take a close look at the embedded Year 1 formulas. Try to answer with spreadsheet formulas to avoid rounding errors.

NOTE: To calculate the amortization of the ROU asset, "interest" on the outstanding lease liability needs to be calculated each period. Within an operating lease, there is no amount recorded as interest expense. Instead, the amortization and the interest roll up into the straight-line lease expense.