In accounting for operating leases, the lessee will recognize lease expense on a straight-line basis.

True or False

Expert Solution

ANSWER: True

EXPLANATION:

In case of operating leases, the lessee should recognize lease payments as an expense in the income statement on a straight-line basis over the lease term, unless another systematic basis is more representative and therefore justified for adoption.

ekkarill92 answered 2 years ago

(Accounting for an Operating Lease) Rauch Incorporated leases a piece of equipment to Donahue Corporation on...

(Accounting for an Operating Lease) Rauch Incorporated leases a piece of equipment to Donahue Corporation on January 1, 2017. The lease agreement called for annual rental payments of $4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $25,000, a book value of $20,000, and both parties expect a residual value of $8,250 at the end of the lease term, though this amount is not...

Journal Entries for a Capital Lease-Lessee On January 1, the lessee company signed an operating lease...

Journal Entries for a Capital Lease-Lessee On January 1, the lessee company signed an operating lease contract. The lease contract calls for $3,000 payments at the end of each year for 10 years. The rate implicit in the lease is 10%. Assume that the lease is to be accounted for as a capital lease. Also assume that the leased asset is to be amortized over the 12-year asset life rather than the 10-year lease term. 1. Make the journal entries...

One way to structure a lease to qualify it as an operating lease for the lessee,...

One way to structure a lease to qualify it as an operating lease for the lessee, but as a capital lease for the lessor is to use different discount rates for the lessees and the lessors. State the other method to achieve the same goal. I was thinking of Direct Financing lease but wouldn't that be a capital lease for lessee as well? I'm lost. Thankful for your help!

Case 13-2 Lessee and Lessor Accounting for lease (Modified) On January 2, 2020, Grant Corp. leases...

Case 13-2 Lessee and Lessor Accounting for lease (Modified) On January 2, 2020, Grant Corp. leases an asset to Pippin Corp. under the following conditions (Assume new lease accounting standard (ASC 842) are effective for both companies). 1. Annual lease payments are $10,000 for 20 years. 2. At the end of the lease term, the asset is expected to have a value of $2,750. 3. The fair value of the asset at the inception of the lease is $92,625 4....

Capitalizing Operating Leases McDonald's Corp. was the lessee at 14,139 restaurant locations through ground leases at...

Capitalizing Operating Leases McDonald's Corp. was the lessee at 14,139 restaurant locations through ground leases at December 31, 2011. The lease terms are generally for 20 years. The company is also the lessee under noncancelable leases covering certain offices and vehicles. The company's footnotes also revealed that at year-end 2011, the minimum lease commitments under noncancelable operating leases were: In millions Restaurant Other Total 2012 $1,172.6 $74.4 $1,247.0 2013 1,104.8 62.8 1,167.6 2014 1,019.50 55.4 1,074.9 2015 921.9 43.1 965.0...

Lessor leases asset to lessee. Lease term is 5 years. Lease payment is $20,000/month + greater...

Lessor leases asset to lessee. Lease term is 5 years. Lease payment is $20,000/month + greater of $5,000 or 2% of lessee’s monthly sales revenue. Lessor’s implicit rate is 12%/year and this rate is known by lessee. Payments are due at the end of the month. No payment was due at the signing of the lease. Required 1. Calculate the present value of the lease payments that will be used in measuring the lessee's lease payable. Please show calculations/explain.

Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment,...

Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment, which is not specialized in nature and is expected to have an alternative use for Lessor at the end of the lease term. Under the lease: Lessor receives annual lease payments of $25,000, with the first one payable at the commencement of the lease and one payment annually at the lease anniversary date thereafter. Lessor expects the residual value of the equipment to be...

Delta Dredge P/L enters into a lease (to a lessee) agreement and leases dredging equipment to...

Delta Dredge P/L enters into a lease (to a lessee) agreement and leases dredging equipment to Wollongong council keep a river mouth clear for boating. The lease consists of the following; date of inception: 1/7/10 duration of lease: 4yrs life of asset: 5 yrs residual value: $120000 lease payments: 165000 annual includes $18000 for maintenance and insurance costs per annum. $90000 (added to final payment) interest: 12.5% fair value: $498016 required: check the rate is correct against FV do journal...

Agri Machinery P/L enters into a lease (to a lessee) agreement and leases harvesting equipment to...

Agri Machinery P/L enters into a lease (to a lessee) agreement and leases harvesting equipment to Grain Holdings Ltd. The lease consists of the following;  Date of inception: 1/1/13  Duration of lease: 4 years  Life of leased asset: 5 years  Lease payments (annual): $160,000 (annual) includes $15,000 for maintenance and insurance costs per annum.  $70,000 (added to final payment)  Implicit rate of interest is 11.5% (is this the actual rate)  Fair value: $490,384...

New lease standards become effective January 1, 2019. These standards affect the accounting for operating leases....

New lease standards become effective January 1, 2019. These standards affect the accounting for operating leases. Assume Swift Company acquires a machine with a fair value of $100,000 on January 1 of Year 1 by signing a five-year lease. Swift must make payments of $16,275 each December 31. The appropriate interest rate on the lease is 10%. Assume that this lease meets the criteria for an operating lease. Compute the following amounts under BOTH: (a) the lease standards in effect...

Question