Reference no: EM132864998

Problem 1: On January 1, Year 1, Lessee entered into a 4-year lease of equipment with a 6-year economic life. The lease does not transfer ownership at the end of the lease term or contain a purchase option. Also, the present value of the lease payments is 92% of the fair value of the leased asset. If no residual value is guaranteed, and no initial direct costs are incurred, what is the appropriate subsequent accounting for, or presentation of, the right-of-use asset?

A. The amortization period is 4 years.
B. In the income statement, amortization of the right-of-use asset and interest on the lease liability are presented in the same line item.
C. In the balance sheet, finance lease and operating lease right-of-use assets are presented in the same line item.
D. Amortization equals the single periodic lease expense minus interest on the lease liability.