Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment.The incentive is cash amounting to $10 000 that will be paid on the date the lease agreement is signed.On inception of the lease,the lessor will record:
A)DR Cash $10 000 CR Incentive to lessee $10 000
B)DR Incentive to lessee $10 000 CR Cash $10 000
C)DR Rent income $10 000 CR Rent expense $10 000
D)DR Cash $10 000 CR Rent income $10 000

Question

Quizplus · Accepted Answer

When a lessor grants a lease incentive as cash, it is recorded as a reduction in the cost of the leased asset and an increase in the incentive liability. Therefore, the lessor will record:
DR Incentive to lessee $10 000
CR Cash $10 000
Hence, option B is the correct answer. Option A is incorrect as it reverses the debit and credit accounts. Option C is incorrect as it records rent income and expense accounts, which are not applicable at the inception of the lease. Option D is incorrect as it records cash as rent income, which is not the case.

Timely Limited Accepts a Lease Incentive to Enter into a 4-Year