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    PracticeCPA®CPA BAR Practice Exam 2Question 39
    Hard1 markMultiple Choice
    Area II: Technical AccountingBARArea IILeases

    CPA · Question 39 · Area II: Technical Accounting

    A lessee enters into a Finance Lease. <br/>- Annual payments: $10,000 (due at end of year)<br/>- Lease term: 5 years<br/>- Discount rate: 5%<br/>- PV of payments: $43,295<br/><br/>What is the total expense to be recognized in Year 1?

    Answer options:

    A.

    $10,000

    B.

    $10,824

    C.

    $8,659

    D.

    $12,165

    How to approach this question

    Finance Lease Expense = Amortization (Straight Line) + Interest (Effective Interest Method).

    Full Answer

    B.$10,824✓ Correct
    B
    Amortization of ROU Asset = $43,295 / 5 years = $8,659. Interest Expense = $43,295 * 0.05 = $2,165. Total Year 1 Expense = $10,824.

    Common mistakes

    Using straight-line rent expense (Operating Lease method).
    Question 38All questionsQuestion 40

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