On January 1, 2014, MU Corporation leased an asset, under an operating lease, to obtain the use of a special machine for three years.The lease payments were $9,000 per year payable at each year-end; the lessee must pay all operating expenses.At the inception date, MU Corporation should:
A)record the asset at the present value of the annual lease payments.
B)record the rent expense of $27,000.
C)make no entry.
D)record the asset at $27,000.
E)record the asset at its fair market value.

Question

Quizplus · Accepted Answer

Under an operating lease, the lessee does not record the leased asset on its balance sheet. Instead, lease payments are recognized as an expense over the lease term. Therefore, at the inception date, MU Corporation should make no entry regarding the asset itself.

On January 1, 2014, MU Corporation Leased an Asset, Under