Leases 1

Which of the following is NOT a factor to consider when identifying if a contract contains a lease

• If the asset is stated in the contract

• If the lessee has the ability to pay

• If the lessee has the right to determine how to use the asset

• If the lessor can substitute the asset

Mr Bean leases an apartment from the landlord at $24,000 per year for 5 years. Rental payment is due at the end of the period. Mr Bean's incremental borrowing rate is 3% per annum. Calculate the amount of lease liability at lease inception

• $113,210

• $20,703

• $65,358

• $109,913

ABC leases a machine at $3,000 per month for 2 years. Rental payment is due at the end of the period. Implicit interest rate was 4%. Calculate the value of the ROU asset at lease inception

• $5,658

• $33,284

• $67,899

• $137,078

Which of the following are NOT included in the cost of ROU asset

• Legal fees for negotiating and vetting of contract

• Discount received from lessor

• Time value of money

• None of the above

Which set of journal entries should be passed when recording the lease liability at the end of the 2nd year of the leasing arrangement

• Dr: interest expense, Cr: ROU asset, Cr: cash

• Dr: lease liability, Dr: interest expense, Cr: cash

• Dr: lease liability, Cr: cash

• Dr Lease liaility, Dr: Interest expense, Cr: ROU Asset