Madison Company leases a copier, in what is classified as an operating lease. Minimum annual lease payment at the beginning of each year = $2,000; lease term = 3 years; appropriate discount rate = 6 percent; salvage value = $1,000. The asset and liability recognized on Madison Company's (the lessee's) balance sheet at the beginning of the lease is $5,300.

Question

Quizplus · Accepted Answer

The present value of the lease payments should be calculated to determine the asset and liability recognized on the balance sheet. Given the lease payments are $2,000 annually for 3 years at a 6% discount rate, without considering the salvage value in the calculation for an operating lease, the present value would be less than $5,300.

Madison Company Leases a Copier, in What Is Classified as an Operating