Question

Under an operating lease: (Select all that apply.)Check All That ApplyThe lessee reports amortization expense and interest expense separately in its income statement.The lessee reports amortization expense and interest expense separately in its income statement.The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement.The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement.The lessor reports a single amount of lease revenue, which is equal to interest revenue plus amortization revenue, in its income statement.The lessor reports a single amount of lease revenue, which is equal to interest revenue plus amortization revenue, in its income statement.The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-line basis over the lease term.The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-line basis over the lease term.

Answer 1

Answer:

• The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement.

• The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-line basis over the lease term.

Explanation:

An operating lease is basically renting an asset from a lessor where the lessee will pay a certain amount every period for the use of the asset.

This rent payment is equal to the interest expense plus amortization expense and will be reported in the income statement of the lessee as an expense.

This amount will also be reported on a straight-line basis for the duration of the lease term which means that even if rent increases, it will still have to be reported by the same amount over the lease period because the lease increase should have been taken into account already.

The lessor also reports lease revenue on a straight-line basis over the lease term.