Question

Assume the initial present value of the payments on a lease are equal to the cost of the leased asset. This capital lease is recorded as an asset on the balance sheet of the lessee in an amount equal to the: A) dollar amount of each lease payment multiplied by the total number of lease payments in the original agreement. B) dollar amount of each lease payment multiplied by the number of lease payments remaining. C) dollar amount of each lease payment multiplied by the number of lease payments per year. D) present value of the remaining lease payments. E) lesser of the present value of the remaining lease payments or the present value of the lease payments for a one-year period..

Answer 1

Answer: D) present value of the remaining lease payments.

Explanation:

When recording a capital lease in the balance sheet of the lessee, the amount recorded is the lower amount between the present value of the remaining lease payments or the cost of the leased asset.

As the cost of the leased asset is equal to the initial present value of the payments, the cost will therefore be higher than the current present value of the remaining payments so the appropriate amount to put in the balance sheet will be the current present value of the remaining lease payments.