Henson Manufacturing Company signed a 3-year contract for the use of certain manufacturing equipment with an estimated life of three years.Henson Manufacturing Company cannot cancel the contract.What entry is made to record the contract?

Question

Quizplus · Accepted Answer

DUnder the new lease accounting standards, when a company enters into a lease agreement for an asset with a term that covers the major part of the asset's economic life (in this case, a 3-year lease for equipment with an estimated life of 3 years), it is considered a finance lease. The company must recognize a right-of-use asset (Leased Asset--Manufacturing Equipment) and a lease liability on its balance sheet. Both choices C and D correctly reflect this treatment but are simply presented in reverse order. The correct accounting treatment does not change based on the order of presentation in the journal entry.

Henson Manufacturing Company Signed a 3-Year Contract for the Use