easy · Financial Accounting accounting-cycle-financial-statements
According to ASC 842, a company enters into a 5-year operating lease for office space with a present value of payments totaling 250,000.
How does this impact the Balance Sheet at commencement?
- Increase Prepaid Rent by 250,000 upfront; Decrease Cash by 250,000.
- Increase PP&E by 250,000 and Increase Long-Term Debt by 250,000 instead.
- Increase Right-of-Use Asset by 250,000; Increase Lease Liability by 250,000.
- No impact on the Balance Sheet at all; only recognize the rent expense monthly.
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