What is the journal entry to record the lease liability at the inception of the lease for a finance lease?
Since the lease is classified as a finance lease, the company must first calculate the net present value of future minimum lease payments. Once the company has that figure, the debit would be to Right of Use asset, with the credit to lease liability.
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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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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...
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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.
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...
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...
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.
