On September 1, 2018, Custom Shirts Inc. entered into a lease agreement appropriately classified as an operating lease. The lease term is three years. The annual payments by Custom Shirts are (a) $20,000 for year 1, (b) $24,000 for year 2, and (c) $28,000 for year 3. How much total lease expense will Custom Shirts recognize for 2018?

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Quizplus · Accepted Answer

11ea937b_35db_3466_a419_5575d36d1438_TB2599_00 In an operating lease, the amortization expense is plugged to cause the total lease expense (interest plus amortization) to be a straight-line amount. If there are uneven payments (advance payment, scheduled rent increases, or scheduled rent decreases), the rent leveling effect will be reflected in the right-of-use asset.