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In a finance lease: a. the lessee records an asset and a liability for the present value of lease payments. b. the lessor records an asset and a liability for the present value of lease payments. c. the lessee records an asset and a liability for the total of the lease payments.

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Answer:

A) the lessee records an asset and a liability for the present value of lease payments.

Explanation:

In a finance lease, the lessee business must estimate the present value of its obligations under the lease contract (using the lease's interest rate as the discount rate) and record it in the balance sheet as:

  • a debit entry under the fixed asset account
  • a credit entry under the capital lease liability account

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