What is the journal entry to record the finance lease on the lease inception date?
On the lease inception date, the company debit right of use (ROU) asset and credit lease liability for the net present value of future minimum lease payments. The visual below shows the journal entry for a lease that has a net present value of future minimum lease payments of $60,000.
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How to calculate the net present value of future minimum lease payments for finance leases?
The formula is quite simple – you just multiply the annual lease payment by the present value factor, and that results in the net present value of future minimum lease payments, which is recorded on the balance sheet as the lease liability (and ROU asset). For example, let’s say the following information is available: The...
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Is the implicit rate or incremental borrowing rate used for finance leases?
When you calculate the net present value of future minimum lease payments, the rule is that you will always use the implicit rate if it is available. The incremental borrowing rate (IBR) is only used the implicit rate is not available.
How to calculate the net present value of future minimum lease payments for finance leases?
The formula is quite simple – you just multiply the annual lease payment by the present value factor, and that results in the net present value of future minimum lease payments, which is recorded on the balance sheet as the lease liability (and ROU asset). For example, let’s say the following information is available: The...
Is the implicit rate or incremental borrowing rate used for finance leases?
When you calculate the net present value of future minimum lease payments, the rule is that you will always use the implicit rate if it is available. The incremental borrowing rate (IBR) is only used the implicit rate is not available.
