Karuna Consulting leased a building on January 2,Year 1.The lease qualifies as an operating lease.The annual payments are $25,000 at the beginning of each year,and the life of the lease is 10 years.What entry would the company make on January 2,Year 1?

Question

Quizplus · Accepted Answer

For an operating lease, the initial entry typically involves recognizing the lease payment as an expense or a prepaid asset when the payment is made at the beginning of the period. Since the payment is at the beginning of the year, it is recorded as Prepaid rent. The amount is $25,000, matching the annual payment, not the total for the 10 years.

Karuna Consulting Leased a Building on January 2,Year 1 Machine 250,000 Lease Obligation 250,000\begin{array} { l l } \text { Machine } & 250,000\\\text { Lease Obligation }&& 250,000\end{array} Machine Lease Obligation ​250,000​250,000​

Karuna Consulting Leased a Building on January 2,Year 1 $\begin{array} { l l } \text { Machine } & 250,000\\\text { Lease Obligation }&& 250,000\end{array}$