Question 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%.

What is the total lease expense recorded in the Income Statement for Year 1?

Accepted Answer

Finance Lease Expense = Interest Expense (Liability * Rate) + Amortization Expense (ROU Asset / Term).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Thinking expense equals the cash payment (that's Operating Lease).

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 4

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