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    PracticeCPA®CPA FAR Practice Exam 4Question 45
    Medium1 markMultiple Choice
    Area III: Select TransactionsFARLeasesOperating Lease

    CPA · Question 45 · Area III: Select Transactions

    A lessee has an operating lease with the following terms: <br/>- 5 year term<br/>- Payments: Year 1: Free; Years 2-5: $15,000 per year.<br/>- Total payments: $60,000.<br/>What is the lease expense for Year 1?

    Answer options:

    A.

    $0

    B.

    $12,000

    C.

    $15,000

    D.

    $10,000

    How to approach this question

    Operating Lease Expense is recognized on a straight-line basis. Sum all payments. Divide by lease term.

    Full Answer

    B.$12,000✓ Correct
    Total Payments = 0 + 15k + 15k + 15k + 15k = $60,000.<br/>Lease Term = 5 years.<br/>Annual Expense = $60,000 / 5 = $12,000.

    Common mistakes

    Recognizing expense based on cash paid.
    Question 44All questionsQuestion 46

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