Assume the initial present value of the payments on a lease are equal to the cost of the leased asset. This capital lease is recorded as an asset on the balance sheet of the lessee in an amount equal to the:
A) dollar amount of each lease payment multiplied by the total number of lease payments in the original agreement.
B) dollar amount of each lease payment multiplied by the number of lease payments remaining.
C) dollar amount of each lease payment multiplied by the number of lease payments per year.
D) present value of the remaining lease payments.
E) lesser of the present value of the remaining lease payments or the present value of the lease payments for a one-year period.

Question

Quizplus · Accepted Answer

The asset recorded on the balance sheet of the lessee is equivalent to the present value of the remaining lease payments, which represents the amount of future payments needed to satisfy the obligations of the lease. Therefore, the present value of the remaining lease payments is a more accurate representation of the cost of the leased asset than any of the other options provided.

Assume the Initial Present Value of the Payments on a Lease