ExpertMedium1 markMultiple Choice
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?
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
B
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.
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