When a lessee measures the present value of future rentals to be capitalized under a finance lease, identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance should be:
A)included in the present value of the future rentals to be capitalized.
B)capitalized, but at a different discount rate and reported in a different account than the present value of the future rental payments.
C)excluded from the present value of the future rentals to be capitalized.
D)capitalized, but at a different discount rate and for a relevant period that usually is different than for the future rental payments.

Question

Quizplus · Accepted Answer

Identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance are typically excluded from the present value of the future rentals to be capitalized under a finance lease. This is because these payments are not part of the lease payments for the right to use the underlying asset but are instead additional services or costs associated with holding the asset.

When a Lessee Measures the Present Value of Future Rentals