ExpertHard1 markMultiple Choice
CPA · Question 47 · Area III: Select Transactions
A lessee enters a lease with the following terms:<br/>- Present Value of Lease Payments: $100,000<br/>- Lease Incentive Received: $5,000<br/>- Initial Direct Costs incurred by Lessee: $2,000<br/>- Prepaid Lease Payments made at commencement: $10,000<br/><br/>What is the initial Right-of-Use (ROU) Asset balance?
A lessee enters a lease with the following terms:<br/>- Present Value of Lease Payments: $100,000<br/>- Lease Incentive Received: $5,000<br/>- Initial Direct Costs incurred by Lessee: $2,000<br/>- Prepaid Lease Payments made at commencement: $10,000<br/><br/>What is the initial Right-of-Use (ROU) Asset balance?
Answer options:
A.
$100,000
B.
$112,000
C.
$107,000
D.
$103,000
How to approach this question
Formula: ROU Asset = Lease Liability + Prepayments + Initial Direct Costs - Lease Incentives Received.
Full Answer
C.$107,000✓ Correct
C
Initial ROU Asset = Lease Liability ($100,000) + Lease Payments made at/before commencement ($10,000) + Initial Direct Costs ($2,000) - Lease Incentives Received ($5,000) = $107,000.
Common mistakes
Adding incentives instead of subtracting. Ignoring direct costs.
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