ExpertMedium1 markMultiple Choice
CPA · Question 39 · Area II: Technical Accounting
A lessee enters into a finance lease for equipment. The lease liability is $100,000 at inception. The annual lease payment is $25,000 paid at the END of each year. The interest rate is 5%. <br/><br/>What is the total lease expense recorded in the Income Statement for Year 1?
A lessee enters into a finance lease for equipment. The lease liability is $100,000 at inception. The annual lease payment is $25,000 paid at the END of each year. The interest rate is 5%. <br/><br/>What is the total lease expense recorded in the Income Statement for Year 1?
Answer options:
A.
$25,000
B.
$5,000
C.
Amortization Expense + Interest Expense
D.
$20,000
How to approach this question
Finance Lease Expense = Interest Expense (Liability * Rate) + Amortization Expense (ROU Asset / Term).
Full Answer
C.Amortization Expense + Interest Expense✓ Correct
C
.
Common mistakes
Thinking expense equals the cash payment (that's Operating Lease).
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