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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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For a lease that transfers ownership of the property to the lessee by the end of the lease term, the lessee should:

  1. a. record each lease payment as lease expense
  2. b. combine interest expense and amortization expense and report as a single lease expense
  3. c. amortize the right-of-use asset over the lease term in a manner consistent with the lessee’s normal depreciation policy for owned assets
  4. d. amortize the right-of-use asset over the economic life of the asset in a manner consistent with the lessee’s normal depreciation policy for owned assets

To determine

Identify the correct option for “when a lease that transfers the ownership of the property to the lessee at the end of the lease term, then the lessee should”.

Explanation

Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.

    a. When there is a transfer of ownership asset in lease, the lessee should amortize the assets throughout the economic life of the asset, just like any other normal asset. Thus, this option is incorrect.

    b. When there is a transfer of ownership asset in lease, the lessee should amortize the assets throughout the economic life of the asset, just like any other normal asset...

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