Reference no: EM132468687

Lessee enters into a five-year lease of office space on January 1, and concludes that the agreement is an operating lease. Lessee pays initial direct costs of $5,000. The agreement provides the following

Lease term                                            Five years, with the first payment due at the end of each year

Annual payments, beginning at the                    Year 1 - $25,000

end of the year and annually                               Year 2 - $26,000

thereafter                                                       Year 3 - $27,000

                                                                   Year 4 -- $28,000

                                                                  Year 5 -- $29,000

Question 1: Determine the present value of lease payments b. Lessee follows ASC 842 to account for the lease. Prepare the required entries at

1) commencement of the lease and

2) at each year-end to record the lease cost, lease payment and properly state the lease liability and ROU asset. Show supporting computations.

Question 2: Prepare t-accounts for the Lease Liability and ROU Asset accounts. Post the above journal entries and show that the balance is zero at the end of the lease term