In a finance lease:
A) the lessee records an asset and a liability for the present value of lease payments.
B) the lessor records an asset and a liability for the present value of lease payments.
C) the lessee records an asset and a liability for the total of the lease payments.
D) the lessor records an asset and a liability for the total of the lease payments.

Question

Quizplus · Accepted Answer

In a finance lease, the lessee (the one using the leased asset) is required to record an asset and a liability for the present value of the lease payments. This is because, in a finance lease, the lessee is treated as the owner of the leased asset for accounting purposes, and therefore, they record the asset on their balance sheet. The liability is recorded for the present value of lease payments because the lessee is obligated to make these payments to the lessor (the owner of the asset) over the lease term.

In a Finance Lease