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What is the journal entry to record the amortization expense for a finance lease?

On the lease inception (start) date, the company would capitalize the finance lease onto the balance sheet based on the net present value of future minimum lease payments.

The company then needs to amortize the ROU asset. Annual amortization expense is calculated as the ROU asset divided by the lease life. So, if the ROU asset at inception date was $60,000 and the lease life is 5 years, that results in amortization expense of $12,000 per year. The journal entry would be a debit to amortization expense for $12,000 and a credit to accumulated amortization for $12,000. At the end of the lease life, the ROU asset will be fully amortized.


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